-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BdFeuw0DXPEwMsijvN2RyoIKeIHG/G7huGOe/z/AIhV7Mg3qDg99HIaWJDAAKmuT /HWkYYVT03Wwq7LKxBec3A== 0000950150-97-000449.txt : 19970401 0000950150-97-000449.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950150-97-000449 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTIMA PETROLEUM CORP CENTRAL INDEX KEY: 0000872248 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 980115468 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19020 FILM NUMBER: 97568345 BUSINESS ADDRESS: STREET 1: 600 HOWE ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6C 2T5 STATE: A1 BUSINESS PHONE: 6046846886 MAIL ADDRESS: STREET 1: 600 HOWE ST STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6C 2T5 STATE: A1 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K _______________________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: December 31, 1996 Commission file number: 019020 OPTIMA PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) CANADA 98-0115468 (State of Incorporation) (I.R.S. Employee identification No.) #600, 595 HOWE STREET, VANCOUVER, BRITISH COLUMBIA V6C 2T5 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (604) 684-6886 Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) (Name of Each Exchange on which Registered) COMMON STOCK, NO PAR VALUE NASDAQ (NMS) STOCK MARKET TORONTO STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No . --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of the Common Stock on March 17, 1997 as reported on NASDAQ National Market System was approximately $U.S.20,474,000. Shares of Common Stock held by each senior officer and director and by each person who owns 5% or more of outstanding Common Stock have been excluded in that such person may be deemed to be affiliated. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As at March 17, 1997, Registrant had outstanding 11,307,994 shares of Common Stock. -1- 2 OPTIMA PETROLEUM CORPORATION INDEX TO FORM 10-K PART I ITEM 1. BUSINESS 3 ITEM 2. PROPERTIES 12 ITEM 3. LEGAL PROCEEDINGS 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 16 ITEM 6. SELECTED FINANCIAL DATA 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 24 ITEM 11. EXECUTIVE COMPENSATION 26 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 30 ITEM 15. SIGNATURES 32
-2- 3 PART I ITEM 1. BUSINESS GENERAL Optima Petroleum Corporation (hereinafter referred to as "Optima" or the "Company"), along with its wholly owned United States subsidiary, Optima Energy (U.S.) Corporation, ("Optima US"), is engaged in the business of oil and gas exploration and development in Canada and the United States. The Company was incorporated under the name "Lathwell Resources Ltd.", by registration of Articles and Memorandum pursuant to the laws of the province of British Columbia on April 11, 1983. On February 5, 1988, consolidating its share capital on a 1 for 5 basis, the Company changed its name to "Optima Energy Corporation". On July 9, 1992, the Company changed its name to "Optima Petroleum Corporation" concurrently with a 1 for 2.5 consolidation of its share capital. It was continued under the Canada Business Corporation Act ("CBCA") on May 23, 1995. Effective December 1, 1992, the Company acquired through Optima US, from a director of the Company, a 100 percent interest in the common shares of Arenosa Resource Corporation (Arenosa), a company engaged in oil and gas exploration and production. Arenosa was acquired at fair value as determined by a December 1, 1992 reserve evaluation prepared by independent engineers and was approved by the shareholders. Arenosa was subsequently amalgamated into Optima US. On September 8, 1995 the Company acquired 100% of the shares of Roxbury Capital Corporation pursuant to a plan of arrangement under the CBCA. The purchase of Roxbury Capital Corp. was accounted for as an acquisition at a consideration of $6,186,272 in exchange for 1,374,727 common shares ($4.50 per share). Optima participates primarily as a working interest holder, in numerous oil and gas prospects which are operated either by itself or by third parties. By funding its proportionate share of drilling costs of a successfully completed well, Optima earns an interest in the well and in the related acreage, based on the terms of the applicable participation agreement. The Company's oil and gas interests as at December 31, 1996 are described under Item 2 on page(s)13-15. Canadian property interests are held by the Company and U.S. property interest by Optima U.S. Unless otherwise indicated all acquisitions or dispositions referred to in this section and elsewhere in this document have been negotiated on an arm's length basis. The Company's financial statements are stated in Canadian dollars (CDN$) and are prepared in accordance with Canadian generally accepted accounting principals ("GAAP"); reconciliations to U.S. GAAP are contained in footnotes to the financial statements. The value of the U.S. Dollar in relation to the Canadian Dollar was U.S. $1.3700 as at March 17, 1997. BUSINESS STRATEGY During fiscal 1996 the Company completed its program of divesture of minor U.S. properties with the sale of its interests at Elm Grove, Louisiana. Concurrently, Optima entered into new exploration prospects. The criteria utilized in selecting such prospects included a targeted minimum 25% working interest and a geophysical diversification from the Company's traditional production base and its predominantly natural gas reserve base. The results of its 1996 exploration and development program was the establishment of new oil reserves at Backridge in East Cameron Parish, Louisiana and a significant interest in a new oil / gas pool at East Haynesville in North Louisiana. These projects compliment the Company's major properties at Wildhay, Alberta, Turtle Bayou, Louisiana and Valentine, Louisiana. -3- 4 EXPLORATION STRATEGY The Company's exploration strategy is based on the identification and development of exploratory prospects to achieve reserve growth and to establish long term increased cash flow. Prospect selection criteria requires that each prospect has the minimum potential for the discovery of 5,000,000 barrels of oil or 50 billion cubic feet of natural gas to the 100% working interest. The Company looks to acquire a significant ownership interest of between 25% and 50%. Prospects are identified and developed in conjunction with industry partners. The primary areas of focus are the onshore Gulf Coast of Louisiana, USA and West Central Alberta, Canada. The Company believes that substantial oil and natural gas reserves can be established through the utilization of 3-D seismic and CAEX technology with specific applications in the Gulf Coast of Louisiana. The application of the sophisticated tools by experienced industry specialists can identify prospects with multiple productive zones, maximize the probability of success and mitigate the risk of dry holes. The Company's philosophy is to participate in the generation of the exploration prospects with its industry partners. The actual operation of the drilling and development programs in respect of the Gulf Coast is vested with local partners. The Company operates its major Canadian properties. OIL AND NATURAL GAS RESERVES Substantially all of the Company's oil and natural gas reserves are located in Alberta, Canada and Louisiana, USA. AMH Group Ltd., independent reserve engineers evaluated the Company's reserves in Canada. The TMR Joint Venture was evaluated by Ryder Scott Company whereas the remaining U.S. properties were evaluated by Laroche Petroleum Consultants Ltd. All three independent evaluations ("Evaluation Reports") were effective December 31, 1996. In 1994, AMH Group Ltd. provided reserve evaluations on both the Canadian and U.S. properties. Commencing in 1995, the Company retained Ryder Scott Company to evaluate the TMR Joint Venture and had retained the Scotia Group, Inc. to evaluate solely the Elm Grove property. The crude oil and natural gas reserve estimates on which this evaluation is based were determined in accordance with generally accepted evaluation practices. The following table summarizes the Company's reserves. ALL EVALUATIONS OF FUTURE NET PRODUCTION REVENUE SET FORTH IN THE TABLES ARE STATED PRIOR TO PROVISIONS FOR INCOME TAXES AND INDIRECT COSTS. IT SHOULD NOT BE ASSUMED THAT THE DISCOUNTED FUTURE NET REVENUES SHOWN BELOW ARE REPRESENTATIVE OF THE FAIR MARKET VALUE OF OPTIMA'S RESERVES. Other assumptions and qualifications relating to costs, prices for future production and other matters are included in the Evaluation Reports Table No. 1 sets forth estimates of the Company's proved developed and undeveloped oil / gas reserves as of December 31, 1996. The Company's estimated total proved developed and undeveloped reserves of oil and natural gas as of December 31, 1996, 1995 and 1994 based upon the Evaluation Reports were as follows:
Reserve Quantity Information Working Interest Share Year Ended December 31 Total United States Canada ---------------- ----------------- ---------------- Gas Liquids Gas Liquids Gas Liquids mmcf mbbls mmcf mbbls mmcf mbbls ------- ------- ------- -------- ------ ------- Proved Reserves 1996 20,397 1,450 5,143 1139 15,254 311 1995 32,954 748 11,328 331 21,626 417 1994 33,798 537 9,880 313 23,918 224
In addition to the discussion below reference is made to the Consolidated Financial Statements and the Supplemental Oil and Gas Information (unaudited) included elsewhere within. Such discussion also contains information with respect to the Company's reserves at December 31, 1996, 1995 and 1994. -4- 5 For the fiscal years ended December 31, 1996, 1995 and 1994 the Company had the following working interest production:
Production Working Interest Share Year Ended December 31 ---------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Oil Wells (bbls) Canada 29,939 13,880 3,377 USA 123,760 57,242 32,960 Gas Wells (mcf) Canada 1,608,454 763,999 462,803 USA 1,700,984 1,600,490 849,049
The following table sets forth the net proved reserves of the Company as at December 31, 1996, 1995 and 1994 and the discounted cash flow value thereof. The reserve information was derived from the evaluation reports provided by the Company's petroleum engineers:
FUTURE CASH FLOWS UNESCALATED PRICES AND COSTS, CANADIAN DOLLARS, WORKING INTEREST SHARES AS AT DECEMBER 31 1996 1995 1994 -------- ------- ------- Future net cash flow before taxes $63,086 $50,801 $50,429 Future net cash flow discounted at 10% before taxes 43,015 29,473 24,236 Future net cash flow discounted at 10% after taxes (1) 41,536 29,473 24,236
Note: (1) Estimated income taxes have been reduced to give effect to tax benefits related to the use of the Company's available net operating loss carry forwards. In general, estimates of economically recoverable oil and natural gas reserves and of the future net revenues therefrom are based upon a number of variable factors and assumptions, such as historical production from the subject properties, the assumed effects of regulation by governmental agencies and assumptions concerning future oil and natural gas prices and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree, speculative, and classifications of such reserves are only attempts to define the degree of speculation involved. For these reasons, estimates of the economically recoverable oil and natural gas reserves attribute to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of the future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. Therefore, the actual production, revenues, royalties, severance and excise taxes, development and operating expenditures with respect to the Company's reserves will likely vary from such estimates, and such variances could be material. In accordance with applicable requirements of the Securities and Exchange Commission, the estimated discounted future net revenues from estimated proved reserves are based on prices and costs as of the date of the estimate unless such prices or costs are contractually determined at such date. Actual future prices and costs may be materially higher or lower. Actual future net revenues also will be affected by factors such as actual production, supply and demand for oil and natural gas, curtailments or increases in consumption by natural gas purchasers, changes in governmental regulations or taxation and the impact on inflation on costs. -5- 6 OIL AND NATURAL GAS DRILLING ACTIVITIES The following table sets forth the gross and net numbers of productive, or dry exploratory and development wells that the Company drilled in each of 1996, 1995 and 1994.
Gross Net ------------------------ ------------------------- Productive Dry Total Productive Dry Total ---------- --- ----- ---------- --- ----- CANADA Exploratory Wells 1996 - 1 1 - .25 .25 1995 4 - 4 1.95 - 1.95 1994 - 1 1 - .30 .30 Development Wells 1996 1 - 1 .15 - .15 1995 1 - 1 .33 - .33 1994 3 - 3 1.30 - 1.30 USA Exploratory Wells 1996 5 5 10 .60 1.03 1.63 1995 1 4 5 .19 .33 .52 1994 2 7 9 .16 1.61 1.77 Development Wells 1996 1 - 1 .08 - .08 1995 1 - 1 .04 - .04 1994 3 - 3 .48 - .48 TOTAL Exploratory Wells 1996 5 6 11 .60 1.28 1.88 1995 5 4 9 2.14 .33 2.00 1994 2 8 10 .16 1.91 2.07 Development Wells 1996 2 - 2 .23 - .23 1995 2 - 2 .37 - .37 1994 6 - 6 1.78 - 1.78
PRODUCTION The following table summarizes the net volumes of oil, liquids and natural gas produced and sold, before royalty, as well as the average price received in respect to such sales. This table segments production between Canada and USA and represents all properties in which the Company holds interests: -6- 7
NATURAL GAS (CDN$) Canada USA ------------------------------- ------------------------------ Total Net Production Average Sales Net Production Average Sales Company Production (mcf) (price/mcf) (mcf) (price/mcf) (mcf) ------------- ------------- -------------- ------------- ------------------ 1996 1,608,454 $1.38 1,700,984 $3.58 3,309,438 1995 763,999 $1.59 1,600,491 $2.39 2,364,489 1994 462,803 $2.34 849,049 $2.68 1,311,852
OIL AND LIQUIDS (CDN$) Canada USA ------------------------------- ------------------------------ Total Net Production Average Sales Net Production Average Sales Company Production (bbl) (Price/bbl) (bbl) (price/bbl) (bbl) ------------- ------------- -------------- ------------- ------------------ 1996 29,939 $28.52 123,760 $29.86 153,699 1995 13,880 $22.82 57,243 $24.50 71,122 1994 3,377 $18.38 32,960 $21.67 36,337
The following table summarizes the average production costs per unit of production, with natural gas converted to its energy equivalent at a ratio of six thousand cubic feet of natural gas to one barrel of oil:
Canada USA ------ ------ 1996 $2.51 $2.22 1995 $3.49 $1.34 1994 $3.43 $1.95
ACREAGE The following table sets forth the development and undeveloped oil and natural gas acreage in which the Company held an interest as of December 31, 1996. Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether or not such acreage contains proved reserves.
Developed Undeveloped ---------------- ----------------- Gross Net Gross Net ------- ----- ------ ------ Canada 5,760 3,445 25,120 19,812 USA 14,415 2,134 11,425 1,488 Total 20,175 5,579 36,545 21,300
TITLE TO PROPERTIES As is customary in the oil and natural gas industry, the Company makes only a cursory review of title to undeveloped petroleum and natural gas leases at the time they are acquired by the Company. However, before drilling commences, the Company causes a thorough title search to be conducted, and any material defects in title are remedied prior to the time actual drilling of a well on the lease begins. To the extent title opinions or other investigations reflect title defects, the Company, rather than the seller or lessor of the undeveloped property, is typically obligated to cure any such title defects at its expense. If the Company were unable to remedy or cure any title defect of a nature such that it -7- 8 would not be prudent to commence drilling operations on the property, the Company could suffer a loss of its entire investment in drilling operations on the property. The Company believes that it has good title to its oil and natural gas properties, some of which are subject to immaterial encumbrances, easements and restrictions. The oil and natural gas properties owned by the Company are also typically subject to royalty and other similar non-cost bearing interests customary in the industry, including the overriding royalty and participation rights granted with the Company's acquisition of prospects and to the Company's key employees and outside geologists. The Company does not believe that any of these encumbrances or burdens will materially affect the Company's ownership or use of its properties. In respect of its Canadian operations, the majority of its leases are in respect of petroleum and natural gas rights which are owned by the provincial government, referred to as Crown leases and drilling licenses, specifically the Government of Alberta. Accordingly, title opinions are normally not acquired in Canada in respect of mineral title prior to drilling a well on Crown leases granted by the Government of Alberta. MARKETING OF PRODUCTION The Company's production is marketed to third parties in conjunction with industry partners. Typically oil is sold at the wellhead at field posted prices and natural gas is sold under contract at a negotiated price based upon factors normally considered in the industry, such as price regulations, distances from the well to the pipeline, well pressure, estimated reserves, quality of natural gas and prevailing supply / demand conditions. MARKET CONDITIONS Production sold during 1996 was derived solely from oil and gas prospects in Alberta, Canada and Louisiana, USA in which the Company holds interests ranging from 4 to 100 percent. With the exception of Wildhay River, Alberta, the operator of these projects is responsible for the marketing and distribution of the natural gas and oil. Natural gas and oil is sold on a contractual basis in the spot market whereas buyers are subject to change periodically. Approximately 99 percent of revenue during fiscal 1996 was derived from petroleum and natural gas sales, net of royalties and production taxes. The Company's revenue, profitability and future rate of growth are substantially dependent upon prevailing prices for natural gas, and to a lesser extent, oil. Oil and natural gas prices have been extremely volatile in recent years and affected by many factors outside the control of the Company. Additionally, whereas the Company operates in two distinct geographic areas, the Gulf Coast of Louisiana and West Central Alberta, each of these markets has in the past demonstrated entirely different commodity pricing patterns. The monthly average Gulf Coast spot price for natural gas at Henry Hub for 1996 has ranged between $1.83 U.S. per mcf and $3.90 U.S. per mcf. In Canada, the Alberta border average spot price since 1992 has ranged between $2.50 per gigajoule and $0.80 per gigajoule. During 1996, the Alberta border average spot price has ranged between $1.16 and $2.13 per gigajoule. Because the majority of the Company's production and targeted prospects are natural gas, the Company is affected more by changes in natural gas prices than crude oil prices. However, the Company's recent discoveries in Louisiana produce more revenues from oil production than from natural gas. Accordingly, any substantial or extended decline in the price of oil and natural gas could have a material adverse effect on the Company's financial condition and results of operations, including reduced cash flow and borrowing capacity. In addition, sales of oil and natural gas have historically been seasonal in nature, which may lead to substantial differences in cash flow at various times throughout the year. The marketability of the Company's production depends in part upon the availability, proximity and capacity of natural gas gathering systems, pipelines and processing facilities. Federal and state regulation of oil and natural gas adversely affect the Company's ability to produce and market its oil and natural gas. If market factors were to change dramatically, the financial impact on the Company could be substantial. The availability of markets and the volatility of product prices are beyond control of the Company and thus represents a significant risk. COMPETITION The Company operates a growing business in a competitive market. There are a number of risks inherent to the Company's business. There is competition from other oil and gas exploration and development companies with operations similar to those of the Company. Nevertheless, the market for the Company's existing and / or possible -8- 9 future production of petroleum and natural gas tends to be commodity oriented, rather than company oriented. Accordingly, the Company expects to compete by keeping its production costs low through judicious selection of which property to develop, the practice of joint venturing its interests, and keeping overhead charges under control. INDUSTRY RISKS The business of exploration for and production of oil and gas involves a substantial risk of investment loss. Drilling oil and gas wells involves the risk that the wells will be unproductive or that, although productive, the wells do not produce oil or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic if water or other deleterious substances are encountered, which impair or prevent the production of oil or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of crude oil and natural gas is affected by numerous factors beyond the control of the Company. These factors include market fluctuations, the world price of crude oil, the proximity and capacity of crude oil and natural gas pipelines and processing equipment and government regulations, including regulations relating to prices, taxes, royalties, land tenures, allowable production, the import and export of crude oil and natural gas and environmental protection. The effect of these factors cannot be predicted. As with any oil or gas property, there can be no assurance that oil or gas will continue to be produced from the Company's properties. Although the operators of the Company's properties maintain insurance in amounts customary in the industry for liability and property damage on behalf of the working interest participants, the Company may suffer losses from uninsurable hazards or from hazards which the Company may choose not to insure against because of high premium costs or other reasons. REGULATIONS CANADA The oil and gas industry operates in Canada under federal and provincial legislation and regulations which govern land tenure, royalties, production rates, environmental protection, exports and other matters. Federal agencies monitor the price of oil and gas in export trade and the quantities of such products exportable from Canada. Provincial legislation has been enacted for the purpose of regulating the quantities of oil and gas which may be removed from producing provinces. The Company holds interests in oil and gas properties located in the province of Alberta. The regulatory agency in this province is the Alberta Utilities and Energy Resources Board. This province has its own set of regulations; but generally has the following common purposes: i) to effect the conservation of and prevent waste of the oil and gas resources of the province; ii) to ensure orderly and efficient practices in exploration, drilling and pipelining production operations of oil and gas, etc.; iii) to provide for the reporting, recording and useful dissemination of information relating to the oil and gas activities; iv) to afford each owner the opportunity of obtaining its share of production of oil or gas from any pool; and v) to prevent pollution. The sale of oil and gas production in Canada is governed by a free market system. Prices for oil and gas are not under control of any government agency, however the National Energy Board continues to require prior approval for the export of light crude and petroleum products under a contract of more than one year in duration, or for more than two years in the case of heavy oil. Oil and gas production is also subject to provincial regulation in the provinces in which the Company has oil and gas interests. The purpose of these regulations is to prevent waste of oil and gas resources, preserve the natural environment and fix allowable production levels within the limits of maximum efficient rates of production and reasonable market demand for oil and gas. -9- 10 Normal practices to reduce noise, changes to air quality and water quality are expected to be sufficient. In respect of Alberta-based production, Alberta Energy and Natural Resources ("AENR"), Alberta Utilities and Energy Resource Board ("AUERB"), and the Ministry of Labour all have jurisdiction regarding their various areas. The project operators have obtained all necessary permits for exploration work performed to date, and anticipate no material problems obtaining the necessary permits to proceed with development. The National Energy Board regulates all exports of natural gas between provinces and from Canada to the United States. Companies are required to make application to the board prior to such exportation. The Company does not directly export oil and gas although the purchase of it's production may ultimately resell the production in an export market. The project operators of each of the respective properties are responsible for the submission of any pertinent applications. In addition to royalties on freehold leases, producers pay provincial royalties for production on Crown leases. Provincial royalties are subject to a sliding scale which fluctuates with changes in productivity and prices. The Company's producing properties in Canada are located in the province of Alberta, which has a sliding scale royalty tax credit formula for qualifying wells as well as royalty holidays in respect of certain types of wells. UNITED STATES In the United States, natural gas and oil production operations are subject to various types of regulation by state and federal agencies. Legislation affecting the natural gas and oil industry is under constant review for amendment or expansion. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations binding on the natural gas and oil industry and its individual members, some of which carry substantial penalties for failure to comply. Sale of natural gas in the United States is subject to regulation of production, transportation and pricing by governmental regulatory agencies. Generally, the regulatory agency in the state where a producing natural gas well is located supervises production activities and, in addition, the transportation of natural gas sold interstate. Prior to January, 1993, certain natural gas was subject to regulation by the Federal Energy Regulatory Commission ("FERC") under the Natural Gas Policy Act ("NGPA"). The NGPA prescribed maximum lawful prices for natural gas sales effective December 1, 1978. Effective January 1, 1993, natural gas prices were completely deregulated; consequently sales of Optima's natural gas after that date may be made at market prices. Although the transportation and sale of gas in interstate commerce remains heavily regulated, the FERC has recently sought to promote with greater competition in natural gas markets by encouraging open access transportation by interstate pipelines, with the goal of expanding opportunities for producers to contract directly with local distribution companies and end-users. Sales in the Unites States of crude oil, condensate and gas liquids are not regulated and are made at market prices. States in which Optima U.S. conducts business regulate the production and sale of natural gas and oil, including requirements for obtaining drilling permits, the method of developing new fields, the spacing and operations of wells and the prevention of waste of natural gas and resources. In addition, most states regulate the rate of production and may establish maximum daily production allowable for wells on a market demand of conservation basis. To the best of it's knowledge, the Company believes that the operators of drilling programs in which the Company is a joint venture partner, have complied with all regulations in their respective locations involving non-Canadian projects. ENVIRONMENTAL The oil and gas industry is subject to environmental regulation pursuant to various federal and provincial statutes in Canada and various federal, state and local laws in the U.S. These laws regulate storage and transportation of liquid hydrocarbons, use of facilities for treating, processing, recovering or otherwise handling hydrocarbons and wastes therefrom and abandonment and reclamation of well and facility sites. A breach of these laws may result in the imposition of fines and penalties. -10- 11 It must rely on its third party operators to conduct operations on these properties in accordance with applicable environmental and conservation laws. The Company believes that it is currently in substantial compliance with Canadian and U.S. environmental laws and regulations. The Company has experienced no material financial effects to date from compliance with Canadian and U.S. environmental laws or regulations. The Company does not currently plan any material capital expenditures for Canadian or U.S. environmental control efforts. The Company does not act as operator in the U.S. in respect of any of the properties in which it holds interest nor does it intend to do so in the future. On January 9, 1995, the Environmental Protection Agency ("EPA") issued regulations prohibiting the discharge of produced water and produced sand derived from oil and gas operations in certain coastal areas (primarily state waters) of Louisiana and Texas, effective February 8, 1995. In connection with these new regulations, however, the EPA also issued an administrative order requiring affected permittees who must meet the no discharge requirement for produced water to do so by January 1, 1997, unless an earlier compliance date is required by Louisiana or Texas. The incremental cost to implement any required re-injection program is not significant. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered responsible for the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liabilities for the costs of cleaning up the hazardous substances that have been released into the environment. The Company has not received any notification that it may be potentially responsible for cleanup costs under CERCLA. Stricter standards in environmental legislation may be imposed on the oil and gas industry in the future. For instance, certain oil and gas exploration and production wastes are currently excluded from regulations as "hazardous waste" under the federal Resource Conservation and Recovery Act ("RCRA"). From time to time, legislation has been proposed in Congress that would reclassify those exploration and production wastes as RCRA "hazardous wastes" and make the reclassified wastes subject to more stringent handling, disposal and clean-up requirements. If such legislation were to be enacted, it could increase the operating costs of the Company as well as the oil and gas industry in general. Furthermore, although petroleum, including crude oil and natural gas, is exempt from CERCLA, future amendments to CERCLA may remove this exemption. State initiatives to further regulate the disposal of oil and natural gas waste are under consideration in certain states, and these various initiatives could have a similar impact on the Company. GEOGRAPHIC SEGMENTS AND FOREIGN SALES The Company reported net revenue from operations for the fiscal year ended December 31, 1996, of Cdn.$9,975,605. The net revenue is calculated as gross sales of $12,862,701 less royalties of $2,887,096 plus Alberta Royalty Credit. Interest and other income for the 1996 fiscal year was Cdn.$26,095, bringing the total revenue as of December 31, 1996 to Cdn.$10,001,700. -11- 12 The following table sets forth results of operations for producing activities by geographic location, as of the fiscal year ended December 31, 1996.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES (CDN$) 1996 1995 1994 ---------- ----------- ------------ Petroleum and natural gas sales, net of royalties and petroleum taxes: Canada 2,620,886 1,311,115 1,003,087 USA 7,354,719 3,566,184 2,077,816 Operating Profit or (loss): Canada 110,215 159,598 441,732 USA 2,554,535 584,424 (3,696,203) Petroleum and natural gas interests, net of accumulated depletion and depreciation: Canada 16,848,304 16,553,994 9,159,956 USA 17,916,046 16,945,686 13,099,549
EMPLOYEES AND INDEPENDENT CONSULTANTS As at December 31, 1996, the Company directly employed no part-time or full-time individuals. However, nine individuals devote either all or a significant portion of their time to the affairs of the Company, through management agreements. Said agreements consist of those which provide for the services of the Company chairman; president and chief executive officer; secretary and chief financial officer; financial controller; production engineer; one individual who provides corporate communications; one individual who provides accounting services; and two individuals who provide clerical services. Refer to Item 10. Directors and Executive Officers of the Registrant, Item 11. Executive Compensation, and Item 13. Certain Relationships and Related Transactions for additional disclosure. As of December 31, 1996, Optima US directly or indirectly employed no full or part-time individuals. Management is administered by the same individuals who manage the affairs of the Company. ITEM 2. PROPERTIES DESCRIPTION The Company's corporate finance office is located in leased office space at #600 - 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5. The registered office of the Company is Suite 2170, Bow Valley Square Four, 250 - 6th Avenue, S.W., Calgary, Alberta, T2P 3R7. Properties in which the Company holds interests, are located in the province of Alberta, in Canada and in the states of Louisiana, and New Mexico, in the USA. No material weather or environmental problems are anticipated. Oil and gas exploration, development and exploitation should not be inconsistent with the various areas' current mining, recreational and residential uses, which are minimal. Normal practices to reduce noise, changes to air quality and water quality are expected to be sufficient. The project operators have obtained all necessary permits for exploration work performed to date in each of their respective locations, and anticipate no material problems obtaining the necessary permits to proceed with development. The following discussion outlines the acquisition, the location, and summary of operations, for each of the properties in which the Company holds interests. -12- 13 ALBERTA PROPERTIES WILDHAY RIVER The Wildhay project is located 135 miles northwest of Edmonton, Alberta, Canada and covers 19,520 gross acres. Optima has participated in the drilling and/or completion of the following ten wells on 30 1/2 sections of land. These interests were acquired through a combination of farm-in agreements, direct petroleum and natural gas leases and drilling license acquisition:
Working Interests (1) Well Location BPO(2) APO(2) Status ------------- ------ ------ ------ 07-01-58-23 W5M 40% 20% Producing 10-15-58-23 W5M 60% 40% Producing 06-06-58-22 W5M 75% 37.5% Producing 14-31-57-22 W5M 25% 12.5% Producing 15-36-57-23 W5M 25% 25% Producing 10-05-57-22 W5M 33.33% 33.33% Producing 05-10-58-23 W5M 60% 75 to 80% In Completion 06-23-58-23 W5M 100% 100% Producing 07-14-58-23 W5M GORR 50% Producing 16-22-58-23 W5M GORR 50% In Completion
Notes: (1) subject to crown royalties (2) BPO means: before payout of well costs; APO means: after payout (3) GORR means a royalty of 15% of production Pursuant to AUERB regulations each well holds by production a one section spacing unit (640 acres) in which the well is located. The gross daily field production for December, 1996 was 8,850 mcf of natural gas and 100 barrels of liquids with Optima's share averaging 55%. The 16-22 well is expected to be tied-in by the end of March, 1997. Another well is scheduled for drilling later in 1997. SNIPE LAKE The Company re-entered a cased wellbore at 02-24-70-18W5M in November, 1996. Although, the workover program undertaken did establish oil production from the Swan Hills formation, the projected, stabilized rate of production does not warrant equipping and tie-in expenditures. No further work is anticipated in 1997 on this prospect. LOUISIANA PROPERTIES TURTLE BAYOU / KENT BAYOU PROSPECT The Company has participated in the drilling of 10 wells since 1990 on this prospect. As at December 31, 1996, there are seven producing wells, three standing cased wells and one abandoned well. The Company's ownership in the various producing wells are as follows: -13- 14
Well Name Working Interest % Net Revenue Interest % - --------- ------------------ ---------------------- CL&F #1 13.475 10.106 CL&F #4 13.475 10.106 CL&F #5 19.25 13.475 CL&F #6 24.25 16.975 CL&F #7 13.475 10.106 CL&F #8 13.475 10.106 CL&F #10 19.25 13.475
During 1996, a deep CIB-OP test well, CL&F #11 was drilled to its targeted depth of 15,340 feet in September, 1996. The well is standing cased and subject to further evaluation of 3-D seismic and other technical data. Gross daily production as at December 31, 1996 was 11,641 mcf and 171 barrels of condensate. The Company's weighted average working interest is 14.78%. As at December 31, 1996, the gross acreage position was 5,955 gross acres. A number of voluntary production units were established with the Department of Conservation State of Louisiana in February, 1997 and accordingly, our leased acreage position will be substantively reduced to 1,688 gross acres from 5,955 gross acres. VALENTINE In August, 1995, the Company acquired additional interests in Valentine Field, Louisiana. A 35% working interest was acquired in 23 wells of which 4 are producing oil wells and 5 are producing gas wells. Additionally, the Company increased the net revenue interests ("NRI") on the petroleum and natural gas leases from a 68% NRI to an average 82.5% NRI. The Company's share of daily production was 51 barrels of oil and 717 mcf of gas for the month of December, 1996. As a condition to this acquisition, Optima US was required to fund from production its pro rata share of a $1.4 million escrow account. The proceeds from this account will be utilized for wellsite restoration. This escrow account was fully funded as at January 31, 1997. A well was drilled to the Southcoast #3 sands in June, 1996 and was abandoned. The Company anticipates the commencement in the latter part of 1997 of a seismic based program to identify deeper drilling targets on the Valentine salt dome. In this respect, the land position as at December 31, 1996 was 3,460 gross acres as compared to approximately 2,600 gross acres a year earlier. TMR JOINT VENTURE Pursuant to the master participation agreement with Texas Meridian Resources Corporation ("TMR") dated October 1, 1993, the Company has evaluated ten prospect areas of which five have been drilled, four rejected pursuant to the geological and geophysical review, and one prospect at Stella is to be drilled by the end of 1997. Seven features have been evaluated by drilling resulting in five gas wells, four oil wells and five dry holes. Optima US holds between a 4% and 8% working interest in the wells operated by TMR pursuant to the joint venture. This represents a daily working interest production rate of 303 barrels of oil and condensate plus 1,125 mcf of natural gas based on December, 1996 production. Subsequent to year end, the Henry 28 No. 1 well and J.A. Davis Estate 26 No. 1 wells at East Cameron (Backridge) were placed into production. Stabilized production rates for these two wells are expected to be in range of 2,000 barrels of oil and 1,000 mcf. Optima U.S. holds an 8% working interest in these wells. An additional 3 wells are planned for the East Cameron field for the remainder of 1997. OTHER PROPERTIES Optima US acquired a 25% working interest in the Chrysler prospect in Lea County, New Mexico. The target is the Devonian formation and is supported by interpreted 3-D seismic. The first well, Savage #34-1 was spudded in December, 1996, drilled to 13,000 feet and abandoned on February 17, 1997. A second well is scheduled to be drilled in June, 1997. -14- 15 A well at East Haynesville, Claiborne Parish, Louisiana, was drilled to evaluate the Smackover "C" sand at a depth of 10,536 feet and was cased in December, 1996. This well, Dubberly #1, in which Optima US has a 28% working interest went into production in late February, 1997 at a daily rate of 200 barrels of oil and 1,300 mcf of gas. An offset well is scheduled to commence in April, 1997. ITEM 3. LEGAL PROCEEDINGS There are no legal proceedings to which the Company or its subsidiary is a party or by which any of its property is subject, other than ordinary and routine litigation to the business of producing and exploring for oil and natural gas. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders of the Company held on May 24, 1996, the Company's shareholders ratified the appointment of KPMG as the Company's independent auditors for 1996. The number of shares voted for and withheld with respect to the election of the directors and the number of shares voted for and against and the abstention for the ratification of the appointment of the Company's auditors were as follows: Nominee For Withhold / Against Abstain - ------- ---------- ------------------ -------- Robert L. Hodgkinson 5,861,311 5,155 66,858 William C. Leuschner 5,861,311 5,155 66,858 Ronald P. Bourgeois 5,858,808 7,658 66,858 Emile D. Stehelin 5,854,633 11,833 66,858 Martin G. Abbott 5,859,094 7,372 66,858 Appointment of Auditors 5,847,999 72,813 12,512
Additionally, the following proposals were approved at the Company's annual meeting:
Nominee Affirmative Votes Withhold / Against Abstain - ------- ----------------- ------------------ ------- Approval of a new Stock Option Plan, allocating and reserving 750,000 shares for future issuance. 2,301,067 1,248,258 58,718 Approval of share compensation arrangement, allocating and reserving 3,740 shares for issuance to outside Directors. 5,186,735 693,037 722,409 Approval of a share compensation arrangement, allocating and reserving 12,000 shares for issuances to the Chief Financial Officer. 4,787,100 423,815 722,409
-15- 16 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK AND EQUITY The Registrant's Common Shares and Warrants trade on the Toronto Stock Exchange in Ontario, Canada under the symbol "OPP" and "OPPwt" respectively. The Registrant's common shares commenced trading on December 1, 1993 and prior to this was trading on the Vancouver Stock Exchange in British Columbia as of May 2, 1988. The Company was delisted from the Vancouver Stock Exchange on March 17, 1994. The Registrant's common shares trade on the NASDAQ in Washington, D.C., U.S.A. under the symbol "OPPCF". The Registrant's common shares commenced trading on NASDAQ on October 26, 1992. The following table lists trading volume and high and low trading prices for the last eight fiscal quarters. The current sales price as of March 17, 1997 was Cdn.$3.70 on the Toronto Stock Exchange, U.S.$2.63 on NASDAQ.
STOCK TRADING DATA COMMON SHARES (OPP) Vancouver Stock Exchange NASDAQ Toronto Stock Exchange --------------------------- --------------------------- -------------------------- Period Ending Volume High Low Volume High Low Volume High Low - ------------- ------ ------ ------- --------- ----- ----- ------- ----- ----- (Cdn.$) (Cdn.$) (U.S..$) (U.S.$) (Cdn.$) (Cdn.$) (Cdn.) 1996 4th Quarter n/a 2,282,517 $3.13 $2.31 591,581 $4.50 $3.30 3rd Quarter n/a 2,000,092 $3.37 $2.96 350,498 $5.10 $3.80 2nd Quarter n/a 2,217,462 $3.63 $2.63 777,051 $4.90 $3.60 1st Quarter n/a 1,679,407 $3.13 $2.50 344,848 $4.25 $3.50 1995 4th Quarter n/a 2,112,338 $3.25 $2.13 286,456 $4.20 $3.40 3rd Quarter n/a 2,047,898 $3.25 $2.00 427,692 $4.35 $2.90 2nd Quarter n/a 945,104 $3.63 $2.25 98,763 $4.75 $3.25 1st Quarter n/a 1,057,423 $4.00 $2.13 261,102 $5.25 $2.95 1994 4th Quarter n/a 2,316,857 $4.75 $3.38 802,150 $6.38 $4.80 3rd Quarter n/a 1,444,251 $5.50 $3.88 251,291 $7.50 $5.50 2nd Quarter n/a 2,322,254 $5.00 $3.00 636,031 $6.88 $4.25 1st Quarter n/a 2,534,871 $5.25 $3.50 540,257 $7.00 $4.75 1993 4th Quarter 481,278 $6.87 $4.85 2,293,307 $4.62 $3.50 92,520 $5.50 $4.75 3rd Quarter 481,443 $7.75 $5.50 1,519,258 $6.12 $4.25 2nd Quarter 1,080,684 $8.25 $3.80 2,583,372 $6.37 $3.00 1st Quarter 240,400 $4.50 $3.30 1,282,238 $3.75 $2.31
-16- 17
STOCK TRADING DATA WARRANTS (OPPWT) Vancouver Stock Exchange NASDAQ Toronto Stock Exchange -------------------------- --------------------------- --------------------------- Period Ending Volume High Low Volume High Low Volume High Low - ------------- ------- ----- ----- ------- ------ ------ ------- ------- ------ Cdn.$ Cdn.$ (U.S.$) (U.S.$) Cdn.$ Cdn.$ 1996 4th Quarter n/a n/a 93,279 $0.25 $0.05 3rd Quarter n/a n/a 108,585 $0.65 $0.25 2nd Quarter n/a n/a 98,747 $0.60 $0.25 1st Quarter n/a n/a 198,655 $0.60 $0.25 1995 4th Quarter n/a n/a 111,868 $0.60 $0.30 3rd Quarter n/a n/a 79,618 $0.85 $0.40 2nd Quarter n/a n/a 1st Quarter n/a n/a
As at March 17, 1997 the Company has 678 shareholders of record. The Company's warrants expired February 28, 1997. The Company has not paid cash dividends on the Common Shares and does not intend to pay cash dividends on the Common Shares in the foreseeable future. The Company currently intends to retain its cash for the continued development of its business including exploratory and developmental drilling activities. Holders of common stock are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore. Upon liquidation, dissolution or winding up of the Registrant, holders of common are entitled to receive pro rata the assets of the Registrant, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no preemptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender or sinking or purchase funds. Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the Canada Business Corporate Act ("CBCA"). Under the CBCA, the Articles of Incorporation documents otherwise provide, that any action to be taken by a resolution of the members may be taken by an ordinary resolution by a vote of a majority or more of the shares represented at the shareholder's meeting. The Registrant is a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation or foreign government. ITEM 6. SELECTED FINANCIAL DATA All financial data should be read in conjunction with the Consolidated Financial Statements of Optima and related notes thereto included elsewhere in this report. The value of the U.S. Dollar in relation to the Canadian Dollar was U.S.$1.3700 as at March 17, 1997. The following table sets forth a history of the exchange rates for the U.S./Canadian Dollar during the past five fiscal years: -17- 18
CANADIAN DOLLAR / U.S. DOLLAR Year Average High Low Close - ----- -------- ------ ------ ------ 1996 $1.36 $1.39 $1.33 $1.37 1995 $1.37 $1.38 $1.35 $1.36 1994 $1.37 $1.41 $1.31 $1.40 1993 $1.28 $1.30 $1.28 $1.29 1992 $1.21 $1.29 $1.14 $1.27
The Company's financial statements are stated in Canadian Dollars (Cdn$) and are prepared in accordance with Canadian Generally Accepted Accounting Principals ("Canadian GAAP"); reconciliations to United States Generally Accepted Accounting Principals ("U.S. GAAP") are contained in note 11 to the consolidated financial statements. The following table presents selected financial information:
SELECTED FINANCIAL DATA CANADIAN GAAP (CDN$ IN 000) Fiscal Year Ended December 31 ----------------------------------------------- 1996 1995 1994 1993 1992 --------- -------- -------- ------- ------- Revenue before royalties and taxes $12,863 $6,762 $4,152 $3,984 N/A Revenue after royalties and production taxes 9,976 4,903 3,126 2,594 1,014 Net income (loss) 229 (1,155) (4,305) (261) (802) Earnings (loss) per share 0.02 (0.13) (0.56) (0.05) (0.23) Working capital * 1,289 747 17 2,833 (679) Resource properties 33,764 33,500 22,260 16,780 10,655 Total assets 41,215 39,178 24,794 21,171 11,828 Long-term debt 6,120 7,390 1,849 1,349 1,128 Shareholders equity 31,472 28,478 20,838 19,167 9,547
-18- 19
SELECTED FINANCIAL DATA U.S. GAAP (CDN$ IN 000) Fiscal Year Ended December 31 ----------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- ------- ------- ------- Revenue before royalty and taxes $12,863 $6,762 $4,152 $3,984 N/A Revenue after royalty and production taxes 9,976 4,903 3,126 2,594 1,014 Net income (loss) 229 (1,955) (4,305) (201) (862) Earnings (loss) per share 0.02 (0.22) (0.56) (0.03) (0.25) Working capital* 1,289 747 17 2,833 (679) Resource properties 33,964 32,700 22,260 16,780 10,655 Total assets 40,415 38,378 24,794 21,171 11,768 Long-term debt 6,120 7,390 1,849 1,349 1,128 Shareholders equity 30,672 27,678 20,838 19,167 9,487
* Total Current Assets less Total Current Liabilities. -19- 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 Year Ended December 31, 1996 Percentage Working Interest -------------------------------------- Increase Increase Cdn$ 1996 1995 1994 (Decrease) (Decrease) - ---- ----------- ---------- ---------- ---------- ---------- Volume: Natural Gas (mcf) 3,309,438 2,364,489 1,311,852 944,949 40% Oil (bbl) 153,699 71,122 36,337 82,577 116% Average Price Per Unit: Natural Gas (/mcf) $2.51 $2.13 $2.56 ($.22) (10%) Oil (/bbl) $29.60 $24.17 $21.36 $5.43 22% Gross Revenues: Natural Gas $8,313,466 $5,043,221 $3,360,741 $3,270,245 65% Oil 4,549,235 1,719,186 776,400 2,830,049 165% Total Revenue $12,862,701 $6,762,407 $4,137,141 $6,100,294
RESULTS OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 1996 TO TWELVE MONTHS ENDED DECEMBER 31, 1995 The Company realized earnings for the year of $228,573 being $0.02 per share as compared to a loss in 1995 of $1,155,062 or $0.13 per share. This improvement of $1,384,235 is a result of increased oil and gas production and improved commodity prices. Gross natural volumes increased 40% from 2,364,489 MCF to 3,309,438 MCF. The increase in oil production was 116% from 71,122 barrels to 153,699 barrels. Combined with strong oil prices, this improvement resulted in gross oil revenue increasing by 165% from $1,719,186 in 1995 to $4,549,235 in 1996. The combined oil and gas revenue for 1996 was $12,862,701 as compared to $6,762,407 in 1995. Earnings before interest, depletion, depreciation, amortization and income taxes ("EBITDA) increased to $6,662,544 or $0.61 per share as compared to $2,481,057 in 1995 or $0.27 per share. The weighted average number of shares used in the calculation of earnings for the year and for EBITDA was 10,945,927 shares whereas the 1995 calculations are based on 9,031,583 shares. The primary reason for this difference is the 1,374,227 shares from the Roxbury plan of arrangement which were issued in September, 1995 and shares issued from treasury in 1996. OPERATING EXPENSE Oil and natural gas operating expenses increased from $926,159 in 1995 to $1,649,650 in 1996. On a boe basis, operating expenses fell to $2.34 in 1996 from $3.03 in 1995 an improvement of 23%. Canadian operating costs fell from $3.49 per boe in 1995 to $2.51 in 1996. Although operating expenses in the U.S. varied slightly, $2.22 per boe in 1996 versus $2.34 per boe in 1995, the 110% increase in Canadian gas production accounts for the differential. INTEREST AND OTHER INCOME Interest revenue of $26,095 in 1996 did not vary significantly from $25,784 a year earlier. Short term Canadian interest rate averaged between 3% and 4.5% over the year. INTEREST EXPENSE Interest expense and bank charges were $685,942 in 1996, as compared to $461,531 in 1995. The primary reason for this increase was that the combined bank loan and debenture principal balance for 1996 averaged $7.5 million Canadian, whereas in 1995 the average principal balance was below $5.0 million. -20- 21 DEPLETION, DEPRECIATION AND AMORTIZATION Depletion and depreciation increased to $5,661,205 in 1996 from $3,207,118 in 1995, an increase of 77 % on a boe basis in 1996 expense was $8.03 per boe versus $6.84 in 1995 (this comparison is based on an energy equivalent of 6 mcf per boe). The calculation of depletion and depreciation is based on the Evaluation Reports as at December 31, 1996, prepared by the independent engineering consultants. These reports assure unescalated pricing and do not recognize the results of subsequent drilling and completion between December 31, 1996 and the filing date of this Annual Report. The amortization expense of $68,494 is derived from the costs of the 1995 Roxbury plan of arrangement in 1996. These deferred charges are being amortized on a straight line basis over 60 months from the date of acquisition. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense of $1,663,411 in 1996 is an increase of $193,328 over 1995, a change of 13%. On a boe basis, general and administrative expenses were $2.36 down 25% from $3.16 per boe in 1995. INVESTMENT CARRYING VALUE Pursuant to both Canadian and United States full cost method of accounting the Company is required to meet certain ceiling tests in respect of the carrying value of petroleum and natural gas interests on the balance as at December 31, 1996. The Company met these ceiling tests, and accordingly, no write-down of petroleum and natural gas interests was required. BALANCE SHEET The Company's total assets as at December 31, 1996 were $41,214,688 as compared to $39,178,076 a year earlier. This increase of 5% over the past year is due primarily to an improvement in working interest capital of $541,651. Whereas the increase in petroleum and natural interests to $34,764,350 (being $50,376,801 of capital costs less $15,612,451 in accumulated depreciation, depletion and write-offs) was only $1,264,670, a reduction in the level of year end activity reduced the advances to operators by $881,352. The note receivable at year end of $497,692 is in respect of the sale at Elm Grove which closed in 1996. In respect of liabilities and shareholders' equity, long term debt (including current portion) declined slightly to $6,850,017 from $7,390,400 a year earlier. This change is a combination of higher bank debt and the redemption of $829,000 of convertible debentures. Shareholders' equity at December 31, 1996 increased to $31,472,428 from $28,477,535. This change is a combination of $228,573 in income for the year end and the net issuance of 759,452 common shares for $2,766,320. TWELVE MONTHS ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994 The Company realized a substantial increase in production as compared to 1994 which contributed to the increase in gross revenue and earnings before interest, depletion, depreciation of taxes. Gross natural gas volumes increased 80% from 1,311,852 mcf to 2,364,489 mcf whereas oil production almost doubled to 71,122 barrels from 36,337. Based on a barrel of oil equivalent basis ("boe") of 10 to 1 (1 barrel equals 10 mcf) which in our opinion reflects the comparative financial value of oil and gas, production increased from 167,455 boe in 1994 to 307,571 in 1995, an increase of 82%. Gross revenue increased by 63% from $4,137,141 in 1994 to $6,762,407 in 1995. Whereas 75% of the Company's production is in the form of natural gas, the 17% decline in the average gas price resulted in the rate of increase in revenue to lag behind in the increase in production. Earnings before interest, depletion, depreciation and taxes in 1995 increased to $2,481,057 from $1,358,079 in 1994, an increase of 83%. Loss per share in 1995 fell to $0.13 per share being $1,155,062 from $0.56 in 1994, an improvement of 77%. The weighted average number of shares used in the calculation was 9,031,583 shares in 1995 as compared to 7,625,417 shares in 1994 and reflects the issuance of 1,374,727 shares from the Roxbury plan of arrangement. -21- 22 OPERATING EXPENSES Oil and natural gas operating expenses increased to $926,159 in 1995 from $615,477 in 1994. On a boe basis operating expense fell by 14% to $3.03 per boe in 1995 from $3.68 per boe in 1994. This improvement results from the benefit of economics of scale at Wildhay River and Lake Boeuf, where the Company is realizing higher production levels. INTEREST AND OTHER INCOME Interest revenue fell from $45,628 in 1994 to $25,784 reflecting lower short-term interest rates in Canada and a lower average cash balance throughout 1995. Other income of $47,748 is a result of the conversion of debentures received on the sale of debenture received on the sale of marginal properties to SLN Ventures Corporation. INTEREST EXPENSE Interest expense and bank charges increased to $461,351 in 1995 from $126,399 in 1994 as a direct result of an increase of $5,561,400 in bank debt. DEPLETION, DEPRECIATION AND AMORTIZATION Depletion and depreciation increased substantially from $1,719,897 in 1994 to $3,207,118 in 1995, an increase of 86%. On a boe basis, the 1995 expense was $6.84 per boe versus $6.74 in 1994 (this comparison is based on 6 mcf equal to 1 barrel which is the energy equivalent). The calculation of depreciation and depletion is based on the Evaluation Reports as at December 31, 1995 which assumes unescalated commodity pricing and does not recognize the results of subsequent drilling and completion between December 31, 1995 and the filing date of this 10-K Annual Report. The amortization expense of $22,587 is derived from the costs of the plan of arrangement with Roxbury Capital Corporation. These deferred charges are being amortized on a straight line basis over 60 months from the date of acquisition. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense of $1,470,083 in 1995 is an increase of $362,736 over 1994, a change of 33%. The increase is due to a combination of consultants expense and office rent absorbed in a plan of arrangement with Roxbury as well as on an increase in the level of remuneration. General and administrative expense were $3.16 per boe in 1995 as compared to $4.34 per boe in 1994. INVESTMENT CARRYING VALUE ADJUSTMENT There was no write down of Petroleum and natural gas interests in 1995 as compared to $4,000,000 in 1994. The Company met the ceiling tests under Canadian generally accepted accounting principles. Under the United States full cost method of accounting for petroleum and natural gas interests, the Company using oil and gas prices at the balance sheet date, would have been required to write down its Canadian petroleum and natural gas interests by approximately $800,000. BALANCE SHEET Total assets as at December 31, 1995 were $39,178,076 as compared to $24,794,082 a year earlier. The major source of the change is in petroleum and natural gas interest of $33,499,680 (being $43,597,549 in capital costs less $10,097,869 in accumulated depreciation, depletion and write-offs) which increased $11,240,175 in 1995. During 1995 the Company participated in the drilling of 11 gross wells (2.84 net wells). Additionally, the increase in petroleum and natural gas interests reflects the acquisition of Roxbury and additional interests in Turtle Bayou, Louisiana. In respect of the liabilities and shareholders' equity, long term debt increased from $1,849,000 as at December 31, 1994 to $7,390,400 as at December 31, 1995. Shareholders' equity as at December 31, 1995 increased to $28,477,535 from $20,837,561. The major change is due to the issuance of 2,137,340 shares for $8,795,036 in cash and assets combined with the loss for the year of $1,155,062. -22- 23 TWELVE MONTHS ENDED DECEMBER 31, 1994 TO TWELVE MONTHS ENDED DECEMBER 31, 1993. Net loss for the year ended December 31, 1994 was $4,305,090 as compared to a loss of $260,732 for the previous year. The major reason for this difference is a ceiling test write down of petroleum and natural gas interests of $4,000,000. Loss per share for the year ended December 31, 1994 was $0.56 compared to a loss of $0.05 for the 1993 fiscal year. Optima reported petroleum and natural gas sales, after royalties and production taxes, of $3,080,903 compared with $2,486,000 in 1993. Interest revenue was $45,628 as compared to $107,975 for the previous year. Depreciation and depletion expense was $1,719,897 for 1994 as compared to $815,655 for the 1993 fiscal year. The increase in these non-cash expenses is due to the combination of increased production and the 1995 capital expenditures program which was focused on leasehold acquisition, seismic, geological and geophysical expenditures; specifically significant land acquisition at Wildhay, the Texas Meridian Joint Venture and the drilling of the Vermillion State Lease #1-28 well. LIQUIDITY AND CAPITAL RESOURCES TWELVE MONTHS ENDED DECEMBER 31, 1996 TO TWELVE MONTHS ENDED DECEMBER 31, 1995. Working capital as at December 31, 1996 was $1,288,511 as compared to $746,860 a year earlier. Cash and cash equivalents increased to $2,055,062 at year end from $1,022,925 at December 31, 1995. In addition, a further $638,142 was held in trust to fund future abandonment and site restoration work in the Valentine field. Restoration work will occur during 1997 in the Valentine field which will release a portion of this cash in-trust. The increase in working capital of $541,651 over the fiscal year is a result of a combination of increased cash from operations and a reduction in capital requirements. Cash flow from operations was $5,958,272 in 1996 as compared to $2,074,643 in 1995 an improvement of 187%. After utilizing $44,195 of cash flow to fund accounts receivable and $565,717 to reduce accounts payable, the Company had $5,348,360 to finance its capital expenditures, whereas a year earlier the cash flow available for capital program was only $1,829,975. Net capital requirements for 1996 was $6,045,068 as compared to $15,495,351 in 1995, a reduction of 61%. Petroleum and natural gas expenditures net of proceeds from sale of petroleum and natural interests was $6,779,071 in 1996 as compared to $7,632,770 a year earlier. In respect of financial activities, the Company issued common shares in the amount of $2,766,320 and increased its bank debt by $289,217. The remainder of convertible debentures of $829,000 was retired in December, 1996. The Company as at the date of this annual report anticipates that its 1997 capital requirements will be in the range of $4.0 million to $5.0 million. Additional capital may be required if our planned drilling program results in a major discovery which would necessitate a major development program. It is the Company's intention to utilize cash flow from its production base, combined with cash reserves and bank lines to fund the 1997 capital expenditures. In management's opinion, the Company currently has sufficient cash available and financing resources available for it to fund ongoing operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian GAAP; reconciliations to U.S. GAAP are contained in note 11 to the financial statements. The value of the U.S. Dollar in relation to the Canadian Dollar was U.S. $1.3700 as at March 17, 1997. -23- 24 INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Consolidated Balance Sheets as at December 31, 1996 and 1995. Consolidated Statements of Operations and Deficit for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statement of Change in Financial Position for the Years Ended December 31, 1996, 1995 and 1994. Schedules of Consolidated General and Administrative Expense Notes to Consolidated Financial Statements for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Supplemental Oil and Gas Information ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists as of December 31, 1996, the names of all the Directors of the Registrant, their municipalities of residence, their current positions with the Company and their principal occupations during the past five years. Each Director will serve until the next annual general meeting or until his successor is duly elected, unless his office is vacated in accordance with the Articles of the Registrant. There are no arrangements or understandings pursuant to the selection of any directors of the Registrant.
DIRECTORS Name, Age and Municipality Position with Principal Occupation for of Residence the Company Previous Five Years - -------------------------- ------------- ------------------------ WILLIAM C. LEUSCHNER, (68)** Chairman of the Board See below Calgary, Alberta Director ROBERT L. HODGKINSON, (48)** President, Chief Executive Officer, See below Vancouver, British Columbia Director RONALD P. BOURGEOIS, (45)* Chief Financial Officer, Secretary See below Vancouver, British Columbia Director EMILE D. STEHELIN, (53)**/* Director See below Whitehorse, Yukon Territories MARTIN G. ABBOTT, (44)* Director See below Calgary, Alberta
* Member of the Company's Audit Committee. ** Member of the Company's Executive Committee WILLIAM C. LEUSCHNER: Director and Chairman of the Company since 1989. Mr. Leuschner is a professional geologist with a Bachelor of Geology from Texas A&M in 1950. In 1982, he founded Leuschner International Resources Ltd., a private hydrocarbon consulting and independent oil and gas producing firm, of which he is President. From 1982 to 1992, he was president of Arenosa Resource Corporation, a private oil and gas company, subsequently sold to the Company. Between 1984 and 1995, he has been a Director of Skyline Natural Resources, a publicly-traded company on the Alberta Stock Exchange. Since 1992, he has been a Director of Pantheon Inc., a public pharmaceutical company listed on the TSE. -24- 25 ROBERT L. HODGKINSON: Director, President and Chief Executive Officer of the Company since 1989. From 1982 to November 1990, he was Vice President with L.O.M. Western Securities Ltd., a securities firm in Vancouver, British Columbia. From April 1993, to September 1995, Mr. Hodgkinson was a director of Roxbury Capital Corp. RONALD P. BOURGEOIS: Director and Chief Financial Officer since June 1993 and Secretary since August, 1993. Mr. Bourgeois is a chartered accountant with a Bachelor of Commerce (Hons) from the University of Manitoba in 1973 and achieved his chartered accountant designation in 1976 after articling with Cooper & Lybrand. Prior to his employment with the Company, Mr. Bourgeois served as the President of the General Partner of each limited partnership managed by Lakewood Capital Group Inc. from June, 1989 to June, 1993. He was also President of Q-Vest Petroleum Management Inc. a predecessor of Lakewood from February, 1987 to June, 1989. Both Lakewood Capital Group Inc. and Q-Vest Petroleum Management Inc. are oil and gas investment management companies. From September 1994 to September 1995, Mr. Bourgeois was a director and officer of Roxbury Capital Corp. EMILE STEHELIN: Director of the Company since 1989. Since 1972 he has been President and Director of E.V.E.M. Limited, a private holding company with interests in real estate, property management, construction and mining. MARTIN ABBOTT: Director of the Company since December 1994. Mr. Abbott is a lawyer with a Bachelor of Arts from the University of Alberta in 1973 and Bachelor of Law (LLB) from the same university in 1981. Mr. Abbott then articled with the law firm of Fenerty, Robertson, Fraser & Hatch and later became a partner with that firm, practising oil and gas business law, before joining the Calgary office of Blake, Cassels & Graydon in 1991. Mr. Abbott retired from the partnership of Blake, Cassels & Graydon to form TOM Capital Associates, Inc., a merchant banking firm, in 1995, where he is Managing Director. Mr. Abbott has several years of experience in acting for public and private oil and gas companies in all areas of their activities, including acquisitions, mergers, joint ventures and financing. He also has extensive experience in cross-border transactions involving mergers, acquisitions and oil and gas petrochemical transactions. Mr. Abbott is a founder and director of Real Resources Inc., an Alberta Stock Exchange listed company. The directors of the Company are elected by the shareholders at each annual general meeting and typically hold office until the next annual general meeting at which time they may be re-elected or replaced. Casual vacancies on the board are filled by the remaining directors and the persons filling those vacancies hold office until the next annual general meeting at which time they may be re-elected or replaced. The senior officers are appointed by the board and hold office indefinitely at the pleasure of the board. COMMITTEES OF THE BOARD: The Executive Committee exercises all of the powers of the Board of Directors whenever the Board is not in session, subject to any restrictions, regulations, limitations or directions which may from time to time be imposed by the Board and save and except such acts as must by law be performed by the directors themselves. Whereas the Company has no Compensation Committee makes recommendations as to the salary, bonuses and other compensation to be paid to the officers. The Committee held three meetings in 1996 and is composed of William C. Leuschner, Robert L. Hodgkinson and Emile D. Stehelin. The AUDIT COMMITTEE recommends to the Board of Directors the selection of independent auditors: reviews with the auditors the scope of the audit: reviews with the auditors and management of the Company the accounting principles, policies and practices; reviews the audited consolidated financial statements of the Company with the auditors prior to submission thereof to the Board of Directors for approval; reviews with the auditors the adequacy of the Company's internal audit program and the results of the internal audit activities: and undertakes other duties that may be delegated to it. The Committee held one meeting in 1996 and is composed of Ronald P. Bourgeois, Emile D. Stehelin and Martin G. Abbott. -25- 26 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION An "executive officer" is defined to mean the Chairman and any Vice-Chairman of the Board of Directors of the Company, when that person performs the functions of such office on a full-time basis, the President, any Vice President in charge of a principal business unit such as sales, finance or production, any officer of the Company or a subsidiary of the Company, or any person who performs a policy-making function in respect of the Company, whether or not such officer is also a director of the Company or of a subsidiary. The following is a discussion of the compensation being paid to the Company's executive officers. SUMMARY OF COMPENSATION The following table is a summary of compensation paid to the named executive officers and directors as a group for the three most recently completed financial years. Specific aspects of this compensation are dealt with in further detail in the following tables
Annual Compensation Long Term Compensation -------------------------------- ----------------------------------------- Awards Payouts ----------------------------------------- Securities Restricted Fiscal Under Shares or All Other Name and Position Year Other Annual Options Restricted LTIP Compen- of Principal Ended Salary Bonus Compensations(1) Granted(2) Share Units Pay-outs(3) sation(3) - ----------------- ------ ------ ----- ---------------- ----------- ----------- ----------- --------- Robert L. 1996 Nil N/A 150,000 200,000 Nil Nil Nil Hodgkinson 1995 Nil N/A 166,500 150,000 Nil Nil Nil CEO, President 1994 Nil N/A 60,000 90,000 Nil Nil Nil & Director William C. 1996 Nil N/A 150,000 125,000 Nil Nil Nil Leuschner 1995 Nil N/A 149,000 150,000 Nil Nil Nil Chairman, Director 1994 Nil N/A 138,000 65,000 Nil Nil Nil Ronald P. Bourgeois 1996 Nil N/A 118,000 75,000 Nil Nil Nil CFO, Secretary 1995 Nil N/A 96,000 125,000 Nil Nil Nil & Director 1994 Nil N/A 48,000 40,000 Nil Nil Nil Emile D. Stehelin 1996 Nil N/A 0 50,000 Nil Nil Nil Director 1995 Nil N/A 0 50,000 Nil Nil Nil 1994 Nil N/A 0 25,000 Nil Nil Nil Martin G. Abbott 1996 Nil N/A 0 Nil Nil Nil Nil Director 1995 Nil N/A 0 50,000 Nil Nil Nil 1994 Nil N/A 0 25,000 Nil Nil Nil
(1) Directors fees are paid only to non-executive directors at the rate of $500 per meeting and are paid in the form of common shares of the Company. (2) All securities under options granted prior to the grant of April 3, 1995 were canceled pursuant to the terms and conditions of the current stock option plan. (3) The Company does not have a long term incentive plan nor a pension plan. OPTIONS GRANTED DURING THE MOST RECENTLY COMPLETED FISCAL YEAR During the Company's most recently completed fiscal year, there were the following stock options granted to the Name Executive Officers. -26- 27
OPTIONS GRANTED DURING THE MOST RECENTLY COMPLETED FISCAL YEAR Potential Realizable Value based on Assumed Compounded Annual Rates of Share Price Appreciation for Option Individual Grants Term --------------------------------------------------- -------------------------------------- Name Options Percentage of Exercise Expiration 0% per 5% per 10% per - ---- Granted Total Options of Base Date Year Year Year (Shares) granted to Price ---------- ------ --------- ---------- -------- Employees in (per 1996 share) ------------ -------- Robert L. Hodgkinson 125,000 28.57% $4.05 June 12, 1999 0 $81,250 $171,250 75,000 July 25, 1999 0 $47,250 $100,500 William C. Leuschner 125,000 17.86% $4.15 June 12, 1999 0 $81,250 $171,250 Ronald P. Bourgeois 75,000 10.71% $4.15 June 12, 1999 0 $48,750 $102,750 Stock Price per Share June 12, 1999 $4.15 $4.80 $5.52 July 25, 1999 $4.05 $4.68 $5.39 All Optionees 0 $452,801 $955,700 All Shareholders (1) 0 $7,321,707 $15,453,524 Optionee Gain as % of All Shareholder's Gain n/a 6.18% 6.18%
(1) Represents aggregate increases in market capitalization based upon the outstanding shares (11,318,894) of Optima stock as at December 31, 1996. AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets out incentive stock options exercised by the Named Executive Officer, as well as the fiscal year-end options held by a Named Executive Officer.
Name Securities Acquired Aggregate Value Unexercised Options Value of - ---- on Exercise (#) Realized ($) at Fiscal Year-end Unexercised ------------------- --------------- (#) Exercisable / in-the-money Unexercisable Options at Fiscal ------------------ Year-end ($) Exercisable / Unexercisable ---------------- Robert L. Hodgkinson 150,000 159,397(1) 200,000 0(2) William C. Leuschner 75,000 71,625(1) 200,000 0(2) Ronald P. Bourgeois 47,000 38,202(1) 153,000 0(2)
(1) Based on the difference between the option and exercise price and the closing market price of the Company's shares, on the date of exercise, net of brokerage commission. (2) In-the-money options are those where the market value of the underlying securities at the fiscal year-end exceeds the exercise price of the options. The closing price of the Company's shares on December 31, 1996 was $3.30. All of these outstanding options have an exercise price in excess of $3.30 per share and are therefore out-of-the-money. All of the executive officers of the Company are entitled to reimbursement of all reasonable business expenses and to receive incentive stock options as they are granted from time to time by the Company. Reference should be made to "Stock Options" for particulars of stock options granted to Executive Officers. CDN$150,000 (which included reimbursement of expenses, office costs and GST tax) was paid during fiscal 1996 to Leuschner International Resources Ltd. (Leuschner), a consulting and independent oil and gas producing firm controlled by William C. Leuschner, Chairman and Director of the Company. A February 1, 1995 Agreement between the Company and Leuschner, provides for William C. Leuschner's services as Chairman (and one individual who provides clerical services). The renewable contract calls for consideration of CDN$150,000 per year, a monthly payment of $12,500, to the consulting firm. -27- 28 CDN$150,000. (which excluded reimbursement of expenses, office costs and GST tax) was paid during fiscal 1996 to Hodgkinson Equities Corporation, a private consulting firm in which Robert L. Hodgkinson, President/CEO and a Director of the Company, holds a 100 percent interest. The renewable contract calls for monthly payments of CDN$12,500 to Hodgkinson Equities Corporation. CDN$118,000 (which excluded reimbursement of expenses, office costs and GST tax) was paid during fiscal 1996 to Ronald Bourgeois. The renewable contract, dated January 1, 1996, calls for monthly payments of CDN$9,815 to Ronald P. Bourgeois. STOCK OPTIONS Robert Hodgkinson, Emile Stehelin, William Leuschner, Ronald Bourgeois and Martin Abbott have been granted director incentive stock options which were granted in accordance with the policy of the Toronto Stock Exchange which allows a prescribed discount from the average closing price of the Company's shares for the ten trading days immediately prior to the grant of the option. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The authorized capital of the Registrant consists of 100,000,000 shares of common stock without par value of which 11,318,894 are outstanding as of December 31, 1996. All of the authorized shares of the Registrant are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common stock are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore. Upon liquidation, dissolution or winding up of the Registrant, holders of common stock are entitled to receive pro rata the assets of the Registrant, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no preemptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the CBCA. Under the CBCA, the Company's Articles of Incorporation otherwise provide, any action to be taken by a resolution of the members may be taken by an ordinary resolution by a vote of a majority or more of the shares represented at the shareholders' meeting. Roxbury shareholders received a share purchase warrants exercisable until February 28, 1997 on a one for one basis at a price of $5.10 per common shares. As a result there are 1,387,727 share purchase warrants outstanding as at December 31, 1996, all of which subsequently expired unexercised. Debt Securities to be Registered. Not applicable. ---------------------------------- American Depository Receipts. Not applicable. ---------------------------------- Other Securities to be Registered. Not applicable. ---------------------------------- The Registrant is a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation or any foreign government. -28- 29 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth the beneficial ownership of the Company as at December 31, 1996 to the extent that each beneficial owner owns more than five percent of the common shares of the Company:
Number of Shares Name and Address of Beneficially Per Cent Title of Class Beneficial Owner Owned of Class - -------------- ------------------- ---------------- -------- Common Shares Wellington Management, Boston, MA, USA 1,079,000 9.5 Common Shares R.L. Hodgkinson, Vancouver, B.C., Canada 781,400 6.9 Common Shares State Street Research & Management, Boston, MA, USA 633,000 5.6 Total 2,493,400 22.0
SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth the beneficial ownership as at December 31, 1996 of the Company's common shares by each of the Company's directors, certain of its executive officers and by all of its directors and executive officers as a group:
Name and Address of Amount and Nature of Per Cent Beneficial Owner Beneficial Ownership of Class - ------------------ -------------------- -------- R.L. Hodgkinson, Vancouver, B.C., Canada 781,400 (1) 6.9 W.C. Leuschner, Calgary, Alberta, Canada 560,225 (1) 4.9 R.P. Bourgeois, Vancouver, B.C., Canada 44,651 (2) 0.4 E.D. Stehelin, Whitehorse, Yukon, Canada 412,666 (3) 3.7 M.G. Abbott, Calgary, Alberta, Canada 9,350 (4) * All directors and executive officers as a group (5 persons) 1,808,292 15.9
NOTES: (1) Excludes 200,000 exercisable stock options; (2) Excludes 153,000 exercisable stock options; (3) Excludes 90,000 exercisable stock options. (4) Excludes 75,000 exercisable stock options. * Less than 1% ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has entered into the following material transactions with directors, senior officers or principal holders of its securities: (a) 7804 Yukon Inc. is a private company owned indirectly as to 47.619048% by Robert L. Hodgkinson, president of the Company and 52.380952% by Emile D. Stehelin, Director of the Company. 7804 Yukon Inc. has acquired interests in the following prospects in which the Company has participated or is participating: Valentine and Vermilion, Louisiana. Each of these transactions were on terms as favourable as the Company obtained from unaffiliated parties. (b) Colima Oil Company, a company wholly owned by William C. Leuschner, Chairman and director of the Company, has acquired interests in the following prospects in which the Company has participated or is participating; Valentine and East Haynesville, Louisiana. Additionally, Leuschner International Resources Ltd, another company wholly owned by William C. Leuschner acquired an interest in Morinville, Alberta, a prospect in which the Company has a working interest position. Each of these transactions were on terms as -29- 30 favourable as the Company obtained from unaffiliated parties. (c) Hodgkinson Equities Corporation, a company wholly owned by Robert L. Hodgkinson, President and Director of the Company, acquired an interest at Morinville, Alberta, a prospect in which the Company has a working interest position, on terms as favourable as the Company obtained from an unaffiliated party. (d) Ronald P. Bourgeois, Chief Financial Officer and director of the Company acquired an interest in the Morinville, Alberta prospect on terms as favourable as the Company obtained from an unaffiliated party. (e) During October, 1995, Robert L. Hodgkinson acquired 115,000 shares of the Company at $3.35 per share pursuant to a private placement. This transaction was approved by the Toronto Stock Exchange. (f) During October, 1995, William C. Leuschner through Colima Oil Company acquired 34,500 shares of the Company at $3.35 per share pursuant to a private placement. This transaction was approved by the Toronto Stock Exchange. (g) Various loans to Optima were made in 1995 by companies controlled by Robert L. Hodgkinson, Emile D. Stehelin and William C. Leuschner. In May, 1995, Messieurs Hodgkinson, Leuschner and Stehelin advanced to the Company $116,500 each for a total of $349,500. These loans were unsecured and non-interest bearing. Mr. Hodgkinson was repaid in July, 1995 and Messieurs Leuschner and Stehelin were repaid the 19th of October, 1995. There are no loans outstanding as at December 31, 1996. The Company pursuant to the nature of the business from time to time is offered the opportunity to participate in oil and gas prospects. Directors, senior officers and their associate and affiliates are allowed to participate in these prospects only if it is determined by the Board of Directors that their interests is over and above the level of participation that is prudent for the Company in respects of its financial resources. Additionally, the terms of the transactions must be similar to the terms of the participation by the Company. Other than the above referenced situations, no Directors or Executive Officers and no associate or affiliate of the foregoing persons has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction, which in either such case has materially affected or will materially affect the Company. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) INDEX TO FINANCIAL STATEMENTS: ANNUAL FINANCIAL STATEMENTS INCLUDED IN ITEM 8. (i) Independent Auditor's Report (ii) Consolidated Balance Sheets as at December 31, 1996 and 1995. (iii) Consolidated Statements of Operations and Deficit for the Years Ended December 31, 1996, 1995 and 1994. (iv) Consolidated Statement of Change in Financial Position for the Years Ended December 31, 1996, 1995 and 1994. (v) Schedules of Consolidated General and Administrative Expense (vi) Notes to Consolidated Financial Statements for the Years Ended December 31, 1996, 1995, and 1994. (vii) Consolidated Supplemental Oil and Gas Information SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS: No financial statement schedules have been presented as they are not applicable, not required or the required information is included in the Consolidated Financial Statements or Notes thereto. (B) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed by the Registrant. -30- 31 (C) INDEX TO EXHIBITS Exhibit No. Description of Exhibits - ----------- ---------------------------- 3.1 Articles of Incorporation (contained in Exhibit 3.2) 3.2 Articles of Continuance CBCA 3.3 Approval and Special Committee Approval of Plan of Arrangement between Optima Petroleum Corporation and Roxbury Capital Corporation. 3.4 Subscription Agreements for Private Placements entered into during 1995 3.5 Approval of Payment in shares (contained in Exhibit 3.9 and 3.10) 3.6 Employment/Consulting Contracts for Officers and Directors 3.7 Registrant's April 3, 1995 Stock Option Plan, as amended at August 9, 1995 3.8 Registrant's April 10, 1996 Stock Option Plan 3.9 Approval of Share Compensation to Outside Directors (contained in Exhibit 3.10) 3.10 Approval of Share Compensation to Chief Financial Officer 3.11 Consent of AMH Group Ltd. 3.12 Consent of Ryder Scott Company Petroleum Engineers 3.13 Consent of Laroche Petroleum Consultants, Ltd.
-31- 32 ITEM 15. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OPTIMA PETROLEUM CORPORATION BY: /S/ Robert L. Hodgkinson ------------------------------------- ROBERT L. HODGKINSON President Chief Executive Officer and Director Date: March 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date - -------------------------------------------------------------------------------- BY: /S/ Robert L. Hodgkinson President March 26, 1997 ---------------------------- Chief Executive Officer Robert L. Hodgkinson Director BY: /S/ William C. Leuschner Chairman of the Board March 26, 1997 ---------------------------- Director William C. Leuschner BY: /S/ Ronald P. Bourgeois Secretary March 26, 1997 ---------------------------- Chief Financial Officer Ronald P. Bourgeois Director
-32- 33 OPTIMA PETROLEUM CORPORATION Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 34 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Optima Petroleum Corporation as at December 31, 1996 and 1995 and the consolidated statements of operations and deficit and changes in financial position for each of the years in the three year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1996 and 1995 and the results of its operations and the changes in its financial position for each of the years in the three year period ended December 31, 1996 in accordance with generally accepted accounting principles in Canada. /s/ KPMG Chartered Accountants Vancouver, Canada March 14, 1997 35 OPTIMA PETROLEUM CORPORATION Consolidated Balance Sheets December 31, 1996 and 1995
1996 1995 ------------ ------------ ASSETS CURRENT Cash and cash equivalents $ 2,055,062 $ 1,022,925 Accounts receivable 2,516,578 2,472,383 Note receivable - current portion (Note 3) 124,423 -- Debenture receivable -- 493,874 ------------ ------------ 4,696,063 3,989,182 OTHER Cash held in trust (Note 4) 638,142 -- Advances to operators (Note 5) 468,864 1,350,216 Note receivable - long term portion (Note 3) 373,269 -- Petroleum and natural gas interests, full cost method (Note 6) 34,764,350 33,499,680 Deferred charges 273,980 338,998 ------------ ------------ $ 41,214,668 $ 39,178,076 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities $ 2,676,605 $ 3,242,322 Current portion of long-term debt (Note 7) 730,947 -- ------------ ------------ 3,407,552 3,242,322 LONG-TERM DEBT (Note 7) 6,119,670 7,390,400 SITE RESTORATION AND ABANDONMENT 215,018 67,819 SHAREHOLDERS' EQUITY Share capital (Note 8) Authorized 100,000,000 common shares Issued 11,318,894 (1994 - 10,559,442) common shares 31,790,695 29,024,375 Contributed surplus 608,222 608,222 Deficit (Note 8 (f)) (926,489) (1,155,062) ------------ ------------ 31,472,428 28,477,535 ------------ ------------ $ 41,214,668 $ 39,178,076 ============ ============
See accompanying notes to consolidated financial statements. ON BEHALF OF THE BOARD /s/ Robert L. Hodgkinson, Director /s/ Ronald P. Bourgeois, Director 36 OPTIMA PETROLEUM CORPORATION Consolidated Statements of Operations and Deficit Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 OPERATING INCOME Petroleum and natural gas sales $ 12,862,701 $ 6,762,407 $ 4,137,141 Royalties and production taxes 2,887,096 1,885,108 1,056,238 Operating costs 1,649,650 926,159 615,477 ------------ ------------ ------------ 8,325,955 3,951,140 2,465,426 EXPENSES General and administrative (Schedule) 1,663,411 1,470,083 1,107,347 ------------ ------------ ------------ EARNINGS BEFORE INTEREST, DEPLETION, DEPRECIATION, AMORTIZATION AND INCOME TAXES 6,662,544 2,481,057 1,358,079 Depletion and depreciation 5,661,205 3,207,118 1,719,897 Interest and bank charges 685,942 461,531 126,399 Amortization of deferred financing costs 68,494 22,587 -- Foreign exchange gain (3,789) (7,437) (137,499) Interest and other revenue (26,095) (73,532) (45,628) Write-down of petroleum and natural gas interests -- -- 4,000,000 ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 276,787 (1,129,210) (4,305,090) Income taxes (Note 10) 48,214 25,852 -- ------------ ------------ ------------ NET INCOME (LOSS) FOR THE YEAR 228,573 (1,155,062) (4,305,090) DEFICIT, beginning of year (1,155,062) (10,602,526) (6,297,436) Reduction of common share stated capital (Note 8(f)) -- 10,602,526 -- ------------ ------------ ------------ DEFICIT, end of year $ (926,489) $ (1,155,062) $(10,602,526) ============ ============ ============ NET INCOME (LOSS) PER SHARE $ 0.02 $ (0.13) $ (0.56) ============ ============ ============
See accompanying notes to consolidated financial statements. 37 OPTIMA PETROLEUM CORPORATION Consolidated Statements of Changes In Financial Position Years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------- -------------- -------------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income (loss) for the year $ 228,573 $ (1,155,062) $ (4,305,090) Items not involving cash Depletion, depreciation and amortization 5,729,699 3,229,705 1,719,897 Write-down of petroleum and natural gas interests -- -- 4,000,000 ------------- -------------- -------------- 5,958,272 2,074,643 1,414,807 Changes in non-cash working capital: Accounts receivable (44,195) (606,674) (879,522) Accounts payable and accrued liabilities (565,717) 362,006 1,400,831 ------------- -------------- -------------- 5,348,360 1,829,975 1,936,116 ------------- -------------- -------------- FINANCING ACTIVITIES Issue of common shares (net of issue expenses) 2,766,320 2,608,764 5,976,072 Note receivable (497,692) -- -- Increase in bank debt 289,217 5,561,400 1,000,000 Repayment of convertible debentures (829,000) -- -- Issue of securities on purchase of subsidiary -- 6,186,272 -- Conversion of convertible debentures -- (20,000) (500,000) Site restoration and abandonment -- 36,574 31,245 ------------- -------------- -------------- 1,728,845 14,373,010 6,507,317 ------------- -------------- -------------- INVESTING ACTIVITIES Proceeds on sale of petroleum and natural gas interests 1,176,849 925,863 -- Petroleum and natural gas interests (7,955,920) (8,558,633) (11,179,858) Advances to operators 881,352 (903,652) 461,827 Cash in trust (638,142) -- -- Debentures receivable 493,874 (493,874) -- Deferred charges (3,081) (278,783) -- Purchase of subsidiary (Note 2) -- (6,186,272) -- ------------- -------------- -------------- (6,045,068) (15,495,351) (10,718,031) ------------- -------------- -------------- INCREASE (DECREASE) IN CASH 1,032,137 707,634 (2,274,598) CASH AND CASH EQUIVALENTS, beginning of year 1,022,925 315,291 2,589,889 ------------- -------------- -------------- CASH AND CASH EQUIVALENTS, end of year $ 2,055,062 $ 1,022,925 $ 315,291 ============= ============== ==============
See accompanying notes to consolidated financial statements. 38 OPTIMA PETROLEUM CORPORATION Schedules of Consolidated General and Administrative Expense
1996 1995 1994 ---------- ---------- ---------- Consultants $ 681,248 $ 652,259 $ 413,601 Investor communication 247,666 146,800 147,995 Office expense 232,418 248,918 229,893 Legal, audit and tax 207,237 173,193 139,581 Travel 166,708 163,181 117,629 Office rent 80,685 31,879 23,250 Public listing 39,942 50,503 35,398 Directors' fees 7,507 3,350 0 ---------- ---------- ---------- $1,663,411 $1,470,083 $1,107,347 ========== ========== ==========
39 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19941 1. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation The consolidated financial statements are presented in accordance with generally accepted accounting principles applicable in Canada and expressed in Canadian dollars. Except as disclosed in Note 11, these financial statements conform, in all material respects, with generally accepted accounting principles in the United States. (b) Basis of consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Optima Energy (U.S.) Corporation. All intercompany transactions and balances have been eliminated. (c) Cash and cash equivalents Cash and cash equivalents include short-term investments with a maturity of ninety days or less at the time of issue. (d) Petroleum and natural gas interests The Company follows the full cost method of accounting for petroleum and natural gas interests whereby all costs of exploring and developing petroleum and natural gas reserves, net of government grants, are capitalized by individual country cost centre. Such costs include land acquisition costs, geological and geophysical expenses, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities. The total carrying value of the Company's petroleum and natural gas interests, less accumulated depletion, is limited to the estimated future net revenue from production of proved reserves, based on unescalated prices and costs plus the lower of cost and net realizable value of unproved properties, less estimated future development costs, general and administrative expenses, financing costs and income taxes. The carrying value of unproved properties is reviewed periodically to ascertain whether impairment has occurred. Where impairment has occurred, the costs have been written down to their net realizable value. For each cost centre, the costs associated with proved reserves are depleted on the unit-of-production method based on an independent engineering estimate of proved reserves, after royalties, with natural gas converted to its energy equivalent at a ratio of six thousand cubic feet of natural gas to one barrel of oil. Site restoration and abandonment costs, net of expected recoveries for production equipment and facilities, at the end of their useful life, are provided for on a unit-of-production basis. The resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share arrangements are renounced to investors in accordance with income tax legislation. Petroleum and natural gas interests are reduced by the estimated renounced income tax benefits when the expenditures are incurred. Equipment is depreciated on a straight-line basis over five years. 40 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19942 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Deferred charges Debt financing costs are amortized on a straight line basis over the terms of the related loans. (f) Foreign currency translation The operations of the Company's U.S. subsidiary are considered integrated with the operations of the Company, and thus, are translated under the temporal method. Under this method, transactions of the Company and its subsidiaries that are denominated in foreign currencies are recorded in Canadian dollars at exchange rates in effect at the related transaction dates. Monetary assets and liabilities denominated in foreign currencies are adjusted to reflect exchange rates at the balance sheet date. Exchange gains and losses arising on the translation of monetary assets and liabilities, except as they relate to long-term debt, are included in the determination of income for the year. Unrealized foreign exchange gains and losses related to long-term debt are deferred and amortized over the remaining term of the related debt. (g) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of rates for depreciation, depletion and amortization and the impairment of petroleum and natural gas interests. Actual results could differ from these estimates. (h) Fair value of financial instruments Financial instruments include cash and cash equivalents, accounts receivable, note receivable, accounts payable and accrued liabilities and the current and long term portions of long term debt. Fair values approximate carrying values for these financial instruments since they are short term in nature, receivable or payable on demand, or bear interest at floating rates. (i) Comparative figures Certain comparative figures have been reclassified to conform to the presentation adopted in the current year. 2. PURCHASE OF ROXBURY CAPITAL CORP. On September 8, 1995 the Company acquired Roxbury Capital Corp. ("Roxbury") under a plan of arrangement whereby Roxbury shareholders exchanged all of the issued and outstanding common shares of Roxbury for newly issued common shares of the Company, at a ratio of seven Roxbury shares to one Company share. 41 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19942 2. PURCHASE OF ROXBURY CAPITAL CORP. (CONTINUED) Net assets acquired, using the purchase method of accounting: Petroleum and natural gas properties $ 6,775,104 Working capital (48,585) Due to the Company (631,586) Advances to operators 5,692 Furniture and fixtures 2,845 Deferred charges 82,802 ------------ $ 6,186,272 ============ Consideration given, based on an independent business valuation: 1,374,727 common shares of the Company $ 6,186,272 ============
In addition, Roxbury shareholders received a warrant for every seven Roxbury shares exchanged, exercisable until February 28, 1997, for a Company common share at a price of $5.10 per share. The warrants were not exercised and expired on February 28, 1997. The purchase price of the Company's interest exceeded the net book value of the assets acquired by $1,389,355, and this amount has been allocated to the Company's depletable petroleum and natural gas interests. The operating results of Roxbury are included in the Company's consolidated results of operations from the date of acquisition. The following unaudited proforma summary presents the consolidated results of operations as if the acquisition had occurred at the beginning of 1994:
1995 1994 -------------- -------------- Petroleum and natural gas sales, net of royalties and production taxes $ 5,240,994 $ 3,290,811 Loss (2,239,737) (5,658,586) Loss per share (0.22) (0.54)
These unaudited pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of these dates or of results which may occur in the future. 3. Note receivable The note is due on June 18, 2000, bears no interest, is repayable in four equal installments of $90,780 U.S. commencing June 18, 1997 and is secured by a mortgage on certain U.S. oil and gas properties. 42 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19943 4. CASH HELD IN TRUST As a condition of a U.S. oil and gas property acquisition, the Company is obliged to keep cash on deposit to fund future abandonment costs. 5. ADVANCES TO OPERATORS The Company maintains joint accounts with operators engaged by the Company to perform exploration and development work on its petroleum and natural gas interests. 6. PETROLEUM AND NATURAL GAS INTERESTS
United Canada States Total -------------- --------------- --------------- 1996 - ---- Petroleum and natural gas interests $ 19,523,978 $ 30,676,552 $ 50,200,530 Other equipment 151,695 24,576 176,271 -------------- --------------- --------------- 19,675,673 30,701,128 50,376,801 Accumulated depreciation, depletion and write-offs (2,827,369) (12,785,082) (15,612,451) -------------- --------------- --------------- $ 16,848,304 $ 17,916,046 $ 34,764,350 ============== =============== =============== 1995 - ---- Petroleum and natural gas interests $ 17,507,310 $ 25,946,677 $ 43,453,987 Other equipment 118,986 24,576 143,562 -------------- --------------- --------------- 17,626,296 25,971,253 43,597,549 Accumulated depreciation, depletion and write-offs (1,072,302) (9,025,567) (10,097,869) -------------- --------------- --------------- $ 16,553,994 $ 16,945,686 $ 33,499,680 ============== =============== ===============
As at December 31, 1996, unproved properties with capitalized costs of $4,441,055 (1995 - $1,997,208) were not subject to depletion. It is expected that these properties will be evaluated over the next one to three years. In calculating estimated future net revenue at December 31, 1995, the Company used forward sale gas prices received in February 1996. Had the Company used actual gas prices received at December 31, 1995, a write-down of $3,400,000 would have been required in the Company's petroleum and natural gas interests. 43 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19944 7. LONG TERM DEBT 1996 1995 ----------- ------------ Revolving $10,000,000 bank credit line, with a borrowing base of $3,969,000, bearing interest monthly at Canadian Prime Rate plus 1% for Canadian dollar drawdowns and U.S. Base Rate plus 0.5% for United States dollar drawdowns, secured by a fixed and floating charge debenture and a general assignment of book debts and Canadian oil and gas properties. $ 3,447,000 $ 3,697,000 Revolving $5,000,000 (U.S.) bank credit line, with a borrowing base of $3,250,000 (U.S.), drawn to $2,483,304 (U.S.) bearing interest monthly at U.S. Base Rate plus 1.5%, secured by a revolving note due May 15, 1999 and U.S. oil and gas properties. 3,403,617 2,864,400 Convertible 8% debentures maturing on June 30, 1998, convertible into 210 common shares of the Company for every $1,000 principal amount - 829,000 ------------ ------------ 6,850,617 7,390,400 Less current portion of $5,000,000(U.S.) bank credit line ($533,304 U.S.) (730,947) - ------------ ------------ $ 6,119,670 $ 7,390,400 ============ ============
Effective January 31, 1997 the borrowing base on the Company's United States credit line will be reduced by $148,482 ($108,333 U.S.) per month. 44 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19945 8. SHARE CAPITAL (a) Authorized The authorized share capital consists of 100,000,000 common shares without par value. (b) Issued
Number of Capital Shares Stock ---------- ----------- Balance at December 31, 1993 7,062,435 $24,855,793 Issued for cash Exercise of warrants 477,625 1,772,438 Exercise of options 765,000 3,952,925 Conversion of debentures 105,042 500,000 Acquisition of additional interest in a petroleum and natural gas property 12,000 72,000 Common share issue expenses - (321,291) ---------- ----------- Balance at December 31, 1994 8,422,102 30,831,865 Issued for cash Private placements 400,000 1,340,000 Exercise of options 272,500 961,250 Purchase of subsidiary 1,374,727 6,186,272 In lieu of consulting fees 85,912 324,117 Conversion of debentures 4,201 20,000 Reduction of common share stated capital - (10,602,526) Common share issue expenses - (36,603) ---------- ----------- Balance at December 31, 1995 10,559,442 29,024,375 Issued for cash Exercise of options 514,500 1,825,250 Private placements 260,000 1,001,000 Exercise of warrants 714 3,641 In lieu of consulting fees 9,070 32,525 In lieu of directors fees 2,068 7,507 Shares repurchased and cancelled under Normal Course Issuer Bid (26,900) (99,530) Common share issue expenses - (4,073) ---------- ----------- Balance at December 31, 1996 11,318,894 $31,790,695 ========== ===========
45 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19946 8. SHARE CAPITAL (CONTINUED) (c) Reserved in respect of options
Exercise Exercisable Holder Number Price On or Before ------ --------- -------- ------------ Options - ------- Company directors and employees 193,000 $3.50 April 3, 1998 50,000 $3.55 April 3, 1998 110,000 $4.05 July 25, 1998 540,000 $4.15 June 12, 1999 Non-related persons 170,000 $3.50 April 3, 1998 100,000 $4.15 June 12, 1999 --------- 1,163,000 --------- Warrants - -------- Issued on purchase of Roxbury 1,374,727 $5.10 February 28, 1997 --------- 2,537,727 ---------
On February 28, 1997 all 1,374,727 warrants expired unexercised. (d) Net income (loss) per share Net income (loss) per share has been calculated based on the following weighted average numbers of shares outstanding:
1996 1995 1994 ---------- ---------- ---------- Weighted average number of shares 10,945,927 9,031,583 7,625,417 ---------- ---------- ----------
(e) Cash flow per share Cash flow per share has been calculated, based on the weighted average number of shares outstanding, as follows:
1996 1995 1994 ----- ----- ----- Cash flow from operations before working capital changes per share $0.54 $0.23 $0.19 Cash flow from operations after working capital changes per share $0.49 $0.20 $0.25
46 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19947 8. SHARE CAPITAL (CONTINUED) (f) Reduction of share capital On June 22, 1995, the shareholders of the Company passed a special resolution to reduce the stated capital of the Company's common shares by $10,602,526 which represents the Company's deficit at December 31, 1994. 9. RELATED PARTY TRANSACTIONS During 1996, the Company was charged consulting expenses of $395,463 (1995 - $404,017, 1994 - 153,500) by companies related by virtue of common directors. Office expense includes $115,962 (1995 - $115,416, 1994 - $86,000 ) paid to a related company. General and administrative recoveries of $62,018 were received from a company with a common director and were used to reduce consulting, rent and office expenses. 10. INCOME TAXES Income taxes consist of Canadian large corporations tax. The benefit of the Company's losses for income tax purposes has not been recognized in the accounts. The amount of these losses and their expiry dates are as follows:
Canada United States ----------- --------------- 1998 $ 420,445 US $ - 2000 232,807 - 2001 523,255 - 2002 1,327,911 - 2006 - 1,331,731 2007 - 2,299,528 2008 - 1,451,759 2009 - 3,602,341 2010 - 3,151,479 2011 - 783,055 ----------- --------------- $ 2,504,418 US $ 12,619,893 =========== ===============
The Company's effective tax rate differs from the expected statutory rate due to the application of tax losses carried forward, the tax benefits of which were not previously recorded. 47 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19948 11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (a) Accounting for income taxes Under the asset and liability method of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), deferred income tax assets and liabilities, reduced by a valuation allowance to an amount more likely than not to be recovered, are measured using enacted tax rates for the future income tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. The approximate effect of each component of deferred income tax assets and liabilities at December 31, 1996 is as follows: Net operating losses $ 8,911,000 Petroleum and natural gas interests (4,977,000) ------------- Net deferred tax assets 3,934,000 Less valuation allowance (3,934,000) ------------- Deferred tax assets, net of valuation allowance $ - =============
The valuation allowance equals the entire amount of the net deferred tax assets as the recognition criteria for deferred tax assets has not been met. Therefore, there is no effect of applying the provisions of SFAS 109 on the Company's financial statements. (b) Consolidated statements of changes in financial position Under United States accounting principles, the following items are not considered to be cash items and would not appear in the consolidated statements of changes in financial position: (i) the conversion of debentures (ii) the acquisition of subsidiary in exchange for the issuance of shares; and (iii) the issuance of shares on settlement of consulting fees and directors fees payable. As a result, cash flows from operating, financing and investing activities would be presented as follows under United States accounting principles:
1996 1995 1994 ---------- ----------- ------------ Cash flows from: Operating activities $5,388,392 $ 2,154,092 $ 1,936,116 Financing activities 1,688,813 7,862,621 6,507,317 Investing activities (6,045,068) (9,309,079) (10,718,031) ---------- ----------- ------------ Increase (decrease) in cash $1,032,137 $ 707,634 $ (2,274,598) ---------- ----------- ------------
48 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19949 11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (CONTINUED) (b) Consolidated statements of changes in financial position (continued) Under United States accounting principles, the following supplementary cash flow information would be disclosed:
1996 1995 1994 -------- -------- -------- Interest paid $685,942 $461,531 $126,399 -------- -------- -------- Income taxes paid $48,214 $25,852 - ======== ======== ========
(c) Cash flow per share Disclosure of cash flow per share information is prohibited under United States generally accepted accounting principles. (d) Full cost method of accounting Under the United States full cost method of accounting for petroleum and natural gas interests, the Company, using sales prices at the balance sheet date, would have been required to write-down the Canadian petroleum and natural gas interests by approximately $800,000 in 1995. Accordingly, loss and loss per share for the year ended December 31, 1995 under United States accounting principles would be $1,955,062 and $0.22, respectively. 12. SEGMENTED INFORMATION All of the Company's activities are in one business segment, petroleum and natural gas exploration, development and production. Note 6 discloses the Company's petroleum and natural gas interests by geographic segment, and these interests comprise the majority of identifiable assets as at December 31, 1996 and 1995. The Company's operations by geographic segment for the years ended December 31, 1996, 1995 and 1994 were as follows: 49 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 199410 12. SEGMENTED INFORMATION (CONTINUED)
Canada United States Total ---------- ------------- ------------ 1996 - ---- Petroleum and natural gas sales $3,076,442 $9,786,259 $ 12,862,701 Royalties and production taxes 455,556 2,431,540 2,887,096 Operating costs 746,835 902,815 1,649,650 ---------- ---------- ------------ 1,874,051 6,451,904 8,325,955 Depreciation and depletion 1,763,836 3,897,369 5,661,205 ---------- ---------- ------------ 110,215 2,554,535 2,664,750 Unallocated costs: General and administrative 1,663,411 Interest and bank charges 685,942 Interest revenue (26,095) Foreign exchange (3,789) Amortization of deferred financing costs 68,494 Income taxes 48,214 ------------ Net income $ 228,573 ============ 1995 - ---- Petroleum and natural gas sales $1,529,376 $5,233,031 $ 6,762,407 Royalties and production taxes 218,262 1,666,846 1,885,108 Operating costs 491,795 434,364 926,159 ---------- ---------- ------------ Operating income 819,319 3,131,821 3,951,140 Depreciation and depletion 659,722 2,547,396 3,207,118 ---------- ---------- ------------ 159,597 584,425 744,022 Unallocated costs: General and administrative 1,470,083 Interest and bank charges 461,531 Interest and other revenue (73,532) Foreign exchange (7,437) Amortization of deferred financing costs 22,587 Income taxes 25,852 ------------ Loss $ (1,155,062) ============
50 OPTIMA PETROLEUM CORPORATION Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 199411 12. SEGMENTED INFORMATION (CONTINUED)
Canada United States Total ----------- ------------- ---------- 1994 - ---- Petroleum and natural gas sales $1,143,208 $2,993,933 $ 4,137,141 Royalties and production taxes 140,121 916,117 1,056,238 Operating costs 275,993 339,484 615,477 ---------- ---------- ----------- 727,094 1,738,332 2,465,426 Depreciation and depletion 285,362 1,434,535 1,719,897 Write-down of petroleum and natural gas interests - 4,000,000 4,000,000 ---------- ---------- ----------- 441,732 (3,696,203) (3,254,471) Unallocated costs: General and administrative 1,107,347 Interest and bank charges 126,399 Interest revenue (45,628) Foreign exchange (137,499) ----------- Loss $(4,305,090) ===========
51 OPTIMA PETROLEUM CORPORATION Reserve Quantity Information As at December 31, 1996, 1995, and 1994 (unaudited)
Total United States Canada ---------------- ---------------- ----------------- Gas Liquids Gas Liquids Gas Liquids mmcf mbbls mmcf mbbls mmcf mbbls ------- ----- ------ ----- ------ ---- PROVED 1994 Beginning of year 26,863 442 14,323 273 12,540 169 Revisions of previous estimates (1,676) (110) (7,261) (66) 5,585 (44) Purchase of reserves in place 1,584 20 1,584 20 0 0 Discoveries 8,339 221 2,083 119 6,256 102 Production (1,312) (36) (849) (33) (463) (3) ------- ----- ------ ----- ------ ---- End of year 33,798 537 9,880 313 23,918 224 ------- ----- ------ ----- ------ ---- 1995 Beginning of year 33,798 537 9,880 313 23,918 224 Revisions of previous estimates (6,911) 88 581 57 (7,492) 31 Purchase of reserves in place 8,459 179 2,495 30 5,964 149 Discoveries 203 112 203 85 0 27 Sale of reserves in place (231) (97) (231) (97) 0 0 Production (2,364) (71) (1,600) (57) (764) (14) ------- ----- ------ ----- ------ ---- End of year 32,954 748 11,328 331 21,626 417 ------- ----- ------ ----- ------ ---- 1996 Beginning of year 32,954 748 11,328 331 21,626 417 Revisions of previous estimates (12,538) (77) (5,717) 28 (6,821) (105) Purchase of reserves in place 1,178 200 1,178 200 0 0 Discoveries 4,088 745 2,031 716 2,057 29 Sale of reserves in place (1,976) (12) (1,976) (12) 0 0 Production (3,309) (154) (1,701) (124) (1,608) (30) ------- ----- ------ ----- ------ ---- End of year 20,397 1,450 5,143 1,139 15,254 311 ======= ===== ====== ===== ====== ==== PROVED DEVELOPED December 31, 1994 22,509 453 9,318 304 13,191 149 December 31, 1995 23,823 643 9,494 308 14,329 335 December 31, 1996 19,258 996 4,004 828 15,254 168
52 OPTIMA PETROLEUM CORPORATION Changes in the Standardized Measure of Discounted Future Cash Flows As at December 31, 1996, 1995, and 1994 (unaudited)
1996 1995 1994 ---------- ---------- ---------- (000's) PROVED Beginning of year $ 29,473 $ 24,236 $ 23,275 Petroleum and natural gas sales, net of royalties, production taxes and operating expenses (8,326) (3,951) (2,465) Net changes in prices 22,017 (3,572) 6,878 Revisions of quantity estimates (22,936) (3,332) (4,907) Purchase of reserves in place 3,199 7,503 1,738 Discoveries 18,277 1,389 8,181 Sale of reserves in place (1,634) (1,160) 0 Changes in estimated future development costs (9,468) (5,463) (14,769) Development costs incurred 6,978 8,559 11,180 Net change in estimated future taxes (1,479) 0 0 Accretion of discount 2,947 2,424 2,328 Changes in production rates (timing) 2,488 2,840 (7,203) ---------- ---------- ---------- End of year $ 41,536 $ 29,473 $ 24,236 ========== ========== ==========
53 OPTIMA PETROLEUM CORPORATION Standardized Measure of Discounted Future Net Cash Flows And Changes Therein Relating to Proved Oil and Gas Reserves As at December 31, 1996, 1995, and 1994 (unaudited)
United Total States Canada (000's) --------- --------- --------- 1996 Future cash inflows $ 80,667 $ 46,053 $ 34,614 Future production costs (12,866) (4,462) (8,404) Future development costs (4,715) (1,914) (2,801) --------- --------- --------- Future net cash flows 63,086 39,677 23,409 10% annual discount for estimating timing of cash flows (20,071) (10,518) (9,553) --------- --------- --------- 43,015 29,159 13,856 Estimated future income taxes (discounted at 10%) (1,479) (1,479) 0 --------- --------- --------- Standardized measure of discounted cash flows $ 41,536 $ 27,680 $ 13,856 ========= ========= ========= 1995 Future cash inflows $ 66,697 $ 26,994 $ 39,703 Future production costs (13,671) (2,834) (10,837) Future development costs (2,225) (691) (1,534) --------- --------- --------- Future net cash flows 50,801 23,469 27,332 10% annual discount for estimating timing of cash flows (21,328) (7,189) (14,139) --------- --------- --------- 29,473 16,280 13,193 Estimated future income taxes (discounted at 10%) 0 0 0 --------- --------- --------- Standardized measure of discounted cash flows $ 29,473 $ 16,280 $ 13,193 ========= ========= ========= 1994 Future cash inflows $ 65,858 $ 21,235 $ 44,623 Future production costs (10,108) (2,308) (7,800) Future development costs (5,321) (148) (5,173) --------- --------- --------- Future net cash flows 50,429 18,779 31,650 10% annual discount for estimating timing of cash flows (26,193) (6,007) (20,186) --------- --------- --------- 24,236 12,772 11,464 Estimated future income taxes (discounted at 10%) 0 0 0 --------- --------- --------- Standardized measure of discounted cash flows $ 24,236 $ 12,772 $ 11,464 ========= ========= =========
54 OPTIMA PETROLEUM CORPORATION Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities As at December 31, 1996, 1995, and 1994 (unaudited)
United Total States Canada ------- ------- ------- (000's) 1996 Acquisition of properties Proved $ 1,087 $ 1,087 $ -- Unproved 555 529 26 Exploration costs 5,602 4,158 1,444 Development costs 712 165 547 ------- ------- ------- $ 7,956 $ 5,939 $ 2,017 ======= ======= ======= 1995 Acquisition of properties Proved $ 1,764 $ 1,764 $ -- Unproved 377 329 48 Purchase of subsidiary -- Proved 5,057 472 4,585 Unproved 1,718 342 1,376 Exploration costs 4,347 3,313 1,034 Development costs 2,071 1,064 1,007 ------- ------- ------- $15,334 $ 7,284 $ 8,050 ======= ======= ======= 1994 Acquisition of properties Proved $ 2,114 $ 2,114 $ -- Unproved 3,690 1,093 2,597 Exploration costs 658 658 -- Development costs 4,718 4,583 135 ------- ------- ------- $11,180 $ 8,448 $ 2,732 ======= ======= =======
55 OPTIMA PETROLEUM CORPORATION Capitalized Costs Relating to Oil and Gas Producing Activities As at December 31, 1996, 1995, and 1994 (unaudited)
1996 1995 1994 --------- --------- -------- (000's) Unproved oil and gas properties Evaluated $ 7,346 $ 9,987 $ 9,697 Unevaluated 4,441 1,997 134 Proved oil and gas properties 38,414 31,470 19,226 --------- --------- -------- 50,201 43,454 29,057 Accumulated depletion (15,705) (10,312) (7,080) --------- --------- -------- Net capitalized costs $ 34,496 $ 33,142 $ 21,977 ========= ========= ========
EX-3.2 2 ARTICLES OF CONTINUANCE CBCA 1 [LOGO] Industry Canada Industrie Canada CERTIFICATE OF CONTINUANCE CANADA BUSINESS CORPORATIONS ACT OPTIMA PETROLEUM CORPORATION ______________________________________________ Name of corporation-Denomination de la societe I hereby certify that the above-named corporation was continued under section 187 of the Canada Business Corporations Act, as set out in the attached articles of continuance. /s/ Director - Directeur CERTIFICAT DE PROROGATION LOI REGISSANT LES SOCIETES PAR ACTIONS DE REGIME FEDERAL 304257-0 _______________________________________ Corporation number-Numero de la societe Je certifie que la societe susmentionnee a ete prorogee en vertu de l'article 187 de la Loi regissant les societes par actions de regime federal, tel qu'il est indique dans les clauses de prorogation ci-jointes. JUNE 14, 1994/LE 14 JUIN 1994 Date of Continuance - Date de la prorogation Canada EX-3.3 3 APPROVAL & SPECIAL COMMITTEE APPROVAL OF PLAN 1 OPTIMA PETROLEUM CORPORATION The following resolutions were passed by the SPECIAL COMMITTEE of OPTIMA PETROLEUM CORPORATION (the "Company") having been consented to in writing by all the members of the Special Committee as of the 30th day of June, 1995. SPECIAL COMMITTEE APPROVAL OF PLAN OF ARRANGEMENT WHEREAS the Company's Board of Directors appointed the Special Committee to consider the proposed arrangement ("Arrangement") between the Company and Roxbury Capital Corp. ("Roxbury") whereby the Company will acquire all of the issued and outstanding common shares of Roxbury in exchange for common shares and warrants of the Company on the basis of seven common shares and seven share purchase warrants of the Company for every one Roxbury common share, each share purchase warrant entitling the holder to acquire an additional common share of the Company prior to February 28, 1997 at a price of $5.10 per share; AND WHEREAS in considering the appropriateness of the proposed Arrangement, the Special Committee reviewed and considered, among other things: (a) information provided by management of the Company and Roxbury with respect to the business and operations of the Company and Roxbury on both a historical and prospective basis; (b) representations provided by management of the Company that the Arrangement will, in addition to streamlining management and operations of the Company and Roxbury, enhance the Company's property holdings by the consolidating the Company's and Roxbury's interests in the Company's principle producing properties; (c) information provided by the Company's financial advisors and legal counsel; (d) a valuation and fairness opinion prepared by BDO Valuation Inc. at the request of the boards of the Company and of Roxbury, which stated its opinion that the Arrangement is fair, from a financial point of view, to the Company's shareholders and Roxbury shareholders generally. 2 AND WHEREAS the Special Committee has concluded that the proposed Arrangement is fair and reasonable to, and in the best interests of, the Company and the Company's shareholders for the following principal reasons: (a) efficiencies from a management and operations perspective could be realized from the merger of Roxbury and the Company; (b) the availability of a larger asset base and market capitalization to fund ongoing exploration and development programs; and (c) the availability of Roxbury's tax pools in the U.S. to offset taxable cash flow from the Turtle Bayou Prospect in Louisiana. IT IS HEREBY RESOLVED THAT: 1. the Company proceed with the proposed arrangement on the basis set forth in the Arrangement Agreement and attached Plan of Arrangement dated June 30, 1995 (the "Arrangement Agreement"); 2. any one member of the Special Committee be and he is hereby authorized and directed to perform all such acts, deeds and things and execute all such documents and other writings as may be required to give effect to the true intent of this resolution. These resolutions may be signed by the members of the Special Committee in as many counterparts as may be deemed necessary, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument notwithstanding the date of execution and shall be deemed to bear the date set forth above. /s/ William Leuschner - --------------------- William Leuschner /s/ Emile Stehelin - --------------------- Emile Stehelin /s/ Martin G. Abbott - --------------------- Martin G. Abbott - 2 - 3 OPTIMA PETROLEUM CORPORATION The following resolutions were passed by the Directors of OPTIMA PETROLEUM CORPORATION (the "Company") having been consented to in writing by all the Directors of the Company as of the 30th day of June, 1995 APPROVAL OF PLAN OF ARRANGEMENT WHEREAS the Company's Board of Directors appointed the Special Committee to consider the proposed arrangement ("Arrangement") between the Company and Roxbury Capital Corp. ("Roxbury") whereby the Company will acquire all of the issued and outstanding common shares of Roxbury in exchange for common shares and warrants of the Company on the basis of seven common shares and seven share purchase warrants of the Company for every one Roxbury common share, each share purchase warrant entitling the holder to acquire an additional common share of the Company prior to February 28, 1997 at a price of $5.10 per share; AND WHEREAS the Special Committee has concluded that the proposed Arrangement is fair and reasonable to, and in the best interests of, the Company and the Company's shareholders and has recommended to the Board that the Company proceed with the Arrangement; IT IS HEREBY RESOLVED THAT: 1. the Company proceed with the proposed arrangement on the basis set forth in the Arrangement Agreement and attached Plan of Arrangement dated June 30, 1995 (the "Arrangement Agreement"); 2. the President and Chief Financial Officer of the Company be and they are hereby authorized to execute under seal of the Company the Arrangement Agreement; 3. subject to the receipt of all required shareholder, regulatory and court approvals to the Arrangement, the following share issuances be and are hereby approved: (a) the issuance of up to 1,374,727 shares (the Shares") issued at a deemed price of $4.50 per Share and up to 1,374,727 warrants ("Warrants") to the registered shareholders of Roxbury; (b) the issuance of up to 1,374,727 shares upon exercise of the Warrants; (c) the issuance of up to 15,000 shares upon exercise of stock options to the following directors of Roxbury as per paragraph 3.2(b) of the Plan of Arrangement:
Name of Director Number of shares Exercise Price Expiry Date under option --------------------------------------------------------------------------- John McCleery 4,300 $5.25 March 8/96 --------------------------------------------------------------------------- Ted Kozub 7,100 $5.25 March 8/96 --------------------------------------------------------------------------- David Block 3,600 $5.25 March 8/96
4 (d) the issuance of up to 122,300 shares upon exercise of outstanding Roxbury warrants to the following warrant holders:
Name of Warrant Holder Number of shares Exercise Expiry Date under warrant Price - ---------------------------------------------------------------------------------------- Emile Stehelin RRSP 7,300 $ 6.65 September 15, 1995 - ---------------------------------------------------------------------------------------- Eva Stehelin 17,900 $ 6.65 September 15, 1995 - ---------------------------------------------------------------------------------------- John McCleery RRSP 22,200 $ 6.65 September 15, 1995 - ---------------------------------------------------------------------------------------- Thornbury Estates 3,000 $ 6.65 September 15, 1995 - ---------------------------------------------------------------------------------------- Laurie Leuschner 10,700 $ 6.65 September 15, 1995 - ---------------------------------------------------------------------------------------- Geoffrey Kane 4,300 $ 6.65 September 15, 1995 - ---------------------------------------------------------------------------------------- Knapton Investments 2,900 $ 6.65 September 15, 1995 ======================================================================================== Robert L. Hodgkinson 10,700 $ 10.50 November 15, 1995 - ---------------------------------------------------------------------------------------- William C. Leuschner 10,700 $ 10.50 November 15, 1995 - ---------------------------------------------------------------------------------------- Emile Stehelin 10,700 $ 10.50 November 15, 1995 - ---------------------------------------------------------------------------------------- Ronald P. Bourgeois 3,900 $ 10.50 November 15, 1995 - ---------------------------------------------------------------------------------------- Harold Gershuny 5,000 $ 10.50 November 15, 1995 ======================================================================================== Sinclair Capital Corp. 13,000 $ 9.10 August 25, 1996 - ----------------------------------------------------------------------------------------
4. the Company make application to The Toronto Stock Exchange to list the 2,886,754 common shares to be issued and reserved for issuance pursuant to the foregoing share issuances; 5. any one director or officer of the Company be and he is hereby authorized and directed to perform all such acts, deeds and things and execute, under the seal of the Company or otherwise, all such documents and other writings as may be required to give effect to the true intent of this resolution including, without limitation, all treasury orders and the Warrant Indenture with Montreal Trust Company. These resolutions may be signed by the Directors in as many counterparts as may be deemed necessary, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute - 2 - 5 one and the same instrument notwithstanding the date of execution and shall be deemed to bear the date as set forth above. /s/ William Leuschner /s/ Robert L. Hodgkinson - ----------------------------------- ----------------------------------- William Leuschner Robert L. Hodgkinson /s/ Emile Stehelin /s/ Ronald P. Bourgeois - ----------------------------------- ----------------------------------- Emile Stehelin Ronald P. Bourgeois /s/ Martin G. Abbott - ----------------------------------- Martin G. Abbott - 3 - EX-3.4 4 SUBSCRIPTION AGREEMENTS FOR PRIVATE PLACEMENTS 1 SUBSCRIPTION AGREEMENT - SS. 55(2)(4) THIS AGREEMENT MADE EFFECTIVE AS OF THE 10th DAY OF OCTOBER, 1996 (the "Effective Date"). BETWEEN: OPTIMA PETROLEUM CORPORATION Suite 600 - 595 Howe Street Vancouver, British Columbia, Canada, V6C 2T5; (the "Company") AND: QUEENSCLIFF MANAGEMENT LTD. Suite 500 - 221 West Esplanade North Vancouver, British Columbia V7M 3J3 (the "Purchaser") WHEREAS: A. The Purchaser wishes to subscribe for common shares, of the Company (the "Securities"); B. It is the intention of the parties to this Agreement that this subscription will be made pursuant to appropriate exemptions (the "Exemptions") from the registration and prospectus or equivalent requirements of all rules, policies, notices, orders and legislation of any kind whatsoever (collectively the "Securities Rules") of all jurisdictions applicable to this subscription; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements herein contained, the receipt of which is hereby acknowledged, the parties covenant and agree with each other (the "Agreement") as follows: 1. Representations and Warranties of the Purchaser 1.1 The Purchaser represents and warrants to the Company, and acknowledges that the Company is relying on these representations and warranties to, among other things, ensure that it is complying with all of the applicable Securities Rules, that: 2 (a) in the case of the purchase by the Purchaser of the Securities as principal, the Purchaser is purchasing such Securities as principal for its own account, and not for the benefit of any other person, and is purchasing a sufficient number of Securities such that the aggregate acquisition cost to the Purchaser of such Securities is not less than $97,000, if the Purchaser is a resident of British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward Island, Newfoundland or an International Jurisdiction, or $150,000 if the Purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova Scotia; (b) in the case of the purchase of Securities by the Purchaser as agent for a disclosed principal, each beneficial purchaser of such Securities for whom the Purchaser is acting is purchasing as principal for its own account, and not for the benefit of any other person, and is purchasing a sufficient number of Securities so that such beneficial purchaser has an aggregate acquisition cost for such Securities of not less than $97,000, if the beneficial purchaser is a resident of British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward Island, Newfoundland or an International Jurisdiction, or $150,000 if the beneficial purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova Scotia, and the Purchaser is an agent with due and proper authority to execute this Agreement and all documentation in connection with the purchase on behalf of each beneficial purchaser; (c) in the case of the purchase of Securities by the Purchaser as a trustee or as agent for a principal which is undisclosed or identified by account number only, each beneficial purchaser of the Securities for whom the Purchaser is acting is purchasing as principal for its own account, and not for the benefit of any other person, and is purchasing a sufficient number of Securities so that such beneficial purchaser has an aggregate acquisition cost for such Securities of not less than $97,000, if the beneficial purchaser is a resident of British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward Island, Newfoundland or an International Jurisdiction, or $150,000 if the beneficial purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova Scotia, and the Purchaser is a trustee or agent with due and proper authority to execute this Agreement and all documentation in connection with the purchase on behalf of each beneficial purchaser; (d) neither the Purchaser nor any beneficial purchaser on whose behalf the Purchaser is acting has been formed, created, established or incorporated for the purpose of permitting the purchase of the Securities without a prospectus by groups of individuals whose individual share of the aggregate acquisition cost for such Securities is less than $97,000, if the beneficial purchaser is a resident of British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward Island, Newfoundland or an International Jurisdiction, or $150,000 if the beneficial purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova Scotia; - 2 - 3 (e) if the Purchaser and any beneficial purchaser for whom it is acting is resident of an "International Jurisdiction" (which means a country other than Canada or the United States) then: (i) the Purchaser is knowledgeable of, or has been independently advised as to, the applicable Securities Rules of the International Jurisdiction which would apply to this subscription, if there are any; (ii) the Purchaser is purchasing the Securities pursuant to Exemptions under the Securities Rules of that International Jurisdiction or, if such is not applicable, the Purchaser is permitted to purchase the Securities under the applicable Securities Rules of the International Jurisdiction without the need to rely on Exemptions; and (iii) the applicable Securities Rules do not require the Company to make any filings or seek any approvals of any kind whatsoever from any regulatory authority of any kind whatsoever in the International Jurisdiction; and the Purchaser will, if requested by the Company, deliver to the Company a certificate or opinion of local counsel from the International Jurisdiction which will confirm the matters referred to in subparagraphs (ii) and (iii) above to the satisfaction of the Company, acting reasonably; (f) the Purchaser and any beneficial purchaser for whom it is acting is not a "U.S. Person" (as defined under Regulation S made under the United States Securities Act of 1933, which definition includes an individual resident in the United States and an estate or trust of which any executor or administrator or trustee, respectively, is a U. S. Person) and the Purchaser understands and acknowledges that the Securities have not and will not be registered under the United States Securities Act of 1933, and, subject to certain exceptions, the Securities may not be offered or sold within the United States; (g) the Purchaser acknowledges that the Company is relying on the Exemptions in order to complete the trade and distribution of the Securities and the Purchaser is aware of the criteria of the Exemptions to be met by the Purchaser, including those referred to in the Form 20A attached hereto and, if applicable, the Purchaser meets those criteria; (h) the Purchaser acknowledges that because this subscription is being made pursuant to the Exemptions: (i) the Purchaser is restricted from using certain of the civil remedies available under the applicable Securities Rules; - 3 - 4 (ii) the Purchaser may not receive information that might otherwise be required to be provided to the Purchaser under the applicable Securities Rules if the Exemptions were not being used; and (iii) the Company is relieved from certain obligations that would otherwise apply under the applicable Securities Rules if the Exemptions were not being used; (i) the Securities are not being subscribed for by the Purchaser as a result of any material information about the Company's affairs that has not been publicly disclosed; (j) the offer and sale of these Securities was not accompanied by an advertisement and the Purchaser was not induced to purchase these Securities as a result of any advertisement made by the Company; and (k) if the Purchaser is a corporation, the Purchaser is a valid and subsisting corporation, has the necessary corporate capacity and authority to execute and deliver this Agreement and to observe and perform its covenants and obligations hereunder and has taken all necessary corporate action in respect thereof, or, if the Purchaser is a partnership, syndicate, trust or other form of unincorporated organization, the Purchaser has the necessary legal capacity and authority to execute and deliver this Agreement and to observe and perform its covenants and obligations hereunder and has obtained all necessary approvals in respect thereof, and, in either case, upon the Company executing and delivering this Agreement, this Agreement will constitute a legal, valid and binding contract of the Purchaser enforceable against the Purchaser in accordance with its terms and neither the agreement resulting from such acceptance nor the completion of the transactions contemplated hereby conflicts with, or will conflict with, or results, or will result, in a breach or violation of any law applicable to the Purchaser, any constating documents of the Purchaser or any agreement to which the Purchaser is a party or by which the Purchaser is bound. 1.2 The Company represents and warrants to the Purchaser, and acknowledges that the Purchaser is relying on these representations and warranties in entering into this Agreement, that: (a) the Company is a valid and subsisting corporation duly incorporated and in good standing under the laws of the jurisdiction in which it was incorporated, continued or amalgamated; (b) the Company is a reporting issuer in British Columbia, and Ontario and the Company is not, to the best of its knowledge, in material default of any of the requirements of the applicable Securities Rules of those jurisdictions; - 4 - 5 (c) the Company's subsidiaries (the "Subsidiaries"), if any, are valid and subsisting corporations and in good standing under the laws of the jurisdictions in which they were incorporated; (d) the common shares of the Company are listed and posted for trading on the VSE and TSE and, to the best of its knowledge, the Company is not in material default of any of the listing requirements of the VSE or TSE; (e) upon their issuance, the Shares will be validly issued and outstanding fully paid and non-assessable common shares of the Company registered as directed by the Purchaser, free and clear of all trade restrictions (except as may be imposed by operation of the applicable Securities Rules) and, except as may be created by the Purchaser, liens, charges or encumbrances of any kind whatsoever; (f) upon their issuance, the Warrants will be validly created, issued and outstanding, registered as directed by the Purchaser, and, upon their issuance, the shares issued on the exercise of the Warrants will be validly issued and outstanding fully paid and non-assessable common shares of the Company registered as directed by the Purchaser, and both will be free and clear of all trade restrictions (except as may be imposed by operation of the applicable Securities Rules) and, except as may be created by the Purchaser, liens, charges or encumbrances of any kind whatsoever; (g) the Company and its Subsidiaries, if any, hold all licences and permits that are required for carrying on their business in the manner in which such business has been carried on and the Company and its Subsidiaries, if any, have the corporate power and capacity to own the assets owned by them and to carry on the business carried on by them and they are duly qualified to carry on business in all jurisdictions in which they carry on business; (h) to the best of its knowledge, there are no material actions, suits, judgments, investigations or proceedings of any kind whatsoever outstanding, pending or threatened against or affecting the Company or its Subsidiaries, if any, at law or in equity or before or by any Federal, Provincial, State, Municipal or other governmental department, commission, board, bureau or agency of any kind whatsoever and, to the best of the Company's knowledge, there is no basis therefor; (i) the Company has good and sufficient right and authority to enter into this Agreement and complete its transactions contemplated under this Agreement on the terms and conditions set forth herein; and (j) to the best of its knowledge, the execution and delivery of this Agreement, the performance of its obligations under this Agreement and the completion of its transactions contemplated under this Agreement will not conflict with, or result - 5 - 6 in the breach of or the acceleration of any indebtedness under, or constitute default under, the constating documents of the Company or any indenture, mortgage, agreement, lease, licence or other instrument of any kind whatsoever to which the Company is a party or by which it is bound, or any judgment or order of any kind whatsoever of any Court or administrative body of any kind whatsoever by which it is bound. 2. SUBSCRIPTION 2.1 The Purchaser hereby subscribes the subscription funds (the "Subscription Funds") referred to below for and agrees to take up the common shares without par value in the capital stock of the Company (a "Share" or the "Shares") referred to below at a price of Cdn. $3.85 per Share. 2.2 On or before the 10th day of November, 1996, the Purchaser shall deliver to the Company, the Subscription Funds for the Securities subscribed for in the form of cash, solicitor's trust cheque, certified cheque, bank draft, money order or wire transfer payable to the Company. The Company will be entitled to use the Subscription Funds immediately upon the receipt thereof. Pending receipt of Regulatory Approval, the Subscription Funds will be considered a loan from the Purchaser to the Company which will be repaid in full on December 31, 1996 should Regulatory Approval not be obtained by the date specified in paragraph 4.1. 3. COVENANTS, AGREEMENTS AND ACKNOWLEDGMENTS 3.1 The Purchaser covenants and agrees with the Company to: (a) concurrent with the execution of this Agreement, fully complete and execute the TSE questionnaire and, if the Purchaser is an individual (which means a natural person, but does not include a partnership, unincorporated association, unincorporated syndicate, unincorporated organization or trust, or a natural person in his capacity as a trustee, executor, administrator or personal or other legal representative), the Form 20A scheduled to this Agreement; and (b) hold and not sell, transfer or in any manner dispose of the Shares prior to midnight on the first anniversary of the Effective Date unless the Purchaser has obtained the prior written consent of the TSE to the sale, transfer or disposition, and the sale, transfer or disposition is made in accordance with all applicable Securities Rules. 3.2 The Purchaser acknowledges and agrees that the Shares will be subject to such trade restrictions as may be imposed by operation of the applicable Securities Rules, and the share certificate or certificates representing the Shares will bear such legends as may be required by the applicable Securities Rules and by the rules and policies of the TSE. - 6 - 7 3.3 The Company covenants and agrees with the Purchaser to: (a) file the documents necessary to be filed under the applicable Securities Rules, including Forms 20 (or the forms equivalent thereto), within the required time; and (b) use its best efforts to obtain Regulatory Approval prior to the deadline referred to herein. 4. REGULATORY APPROVAL 4.1 Notwithstanding any other term of this Agreement, this Agreement and the subscription provided for hereunder are subject to the Company obtaining the approval of the TSE ("Regulatory Approval") by the 22nd day of November, 1996. In the event that Regulatory Approval is not obtained by this date, this Agreement will terminate and be of no further force and effect and the Subscription Funds will be returned to the Purchaser without interest or deduction. 5. CLOSING 5.1 The completion of the subscription contemplated under this Agreement shall occur on or before the tenth business day (the "Closing Date") following the date Regulatory Approval is given. The Company shall deliver to the Purchaser, no later than the Closing Date, a share certificate or certificates representing the Shares to the Purchaser as provided for below by the Purchaser. 6. GENERAL 6.1 For the purposes of this Agreement, time is of the essence. 6.2 The parties hereto shall execute and deliver all such further documents and instruments and do all such acts and things as may, either before or after the execution of this Agreement, be reasonably required to carry out the full intent and meaning of this Agreement. 6.3 This Agreement shall be subject to, governed by and construed in accordance with the laws of British Columbia. 6.4 This Agreement may not be assigned by either party hereto. 6.5 This Agreement may be signed by the parties in as many counterparts as may be deemed necessary, each of which so signed shall be deemed to be an original, and all such counterparts together shall constitute one and the same instrument. - 7 - 8 IN WITNESS WHEREOF the parties have executed this written Agreement effective as of the Effective Date. The CORPORATE SEAL of ) OPTIMA PETROLEUM CORPORATION was ) hereunto affixed in the presence of: ) ) c/s ) ____________________________________ ) TO BE COMPLETED BY THE PURCHASER: A. NAME AND ADDRESS (NOTE: CANNOT BE A U.S. ADDRESS) The name and address (to establish the Purchaser's jurisdiction of residence for the purpose of determining the applicable Securities Rules) of the purchaser (the "Purchaser") is as follows: Queenscliff Management Ltd. Suite 500 - 221 West Esplanade North Vancouver, B.C. V7M 3J3 B. REGISTRATION INSTRUCTIONS (NOTE: CANNOT BE A U.S. ADDRESS) The name and address of the person in whose name the Purchaser's Securities are to be registered is as follows (if the name and address is the same as was inserted in paragraph A above, then insert "N/A"): N /A _________________________________ Name _________________________________ Street Address _________________________________ _________________________________ City and Province _________________________________ Country _____________ Postal Code C. DELIVERY INSTRUCTIONS (NOTE: CANNOT BE A U.S. ADDRESS) The name and address of the person to whom the certificates representing the Purchaser's Securities referred to in paragraph A above are to be delivered is as follows (if the name and address is the same as was inserted in paragraph A above, then insert "N/A"): N /A _________________________________ Name _________________________________ Street Address - 8 - 9 _________________________________ _________________________________ City and Province _________________________________ Country _____________ Postal Code D. SUBSCRIPTION AMOUNT The minimum is Cdn. $97,000 if the Purchaser is a resident (as per the address inserted in paragraph A above) of British Columbia. Alberta, Manitoba. New Brunswick, Prince Edward Island, Newfoundland or an International Jurisdiction, or Cdn. $150,000 if the Purchaser is a resident of Saskatchewan, Ontario, Quebec or Nova Scotia.: Subscription Funds: Cdn. $1,001,000. Number of Securities: 260,000 Shares Note: The number of Securities must equal the Subscription Funds divided by price of Cdn. $3.85 per Security. TO BE COMPLETED AND SIGNED BY THE PURCHASER: Queenscliff Management Ltd. Name of the "Purchaser" - use the name inserted in paragraph A above. Per: /s/ David N. Matheson __________________________________ Signature of Purchaser President __________________________________ Title (if applicable) - 9 - EX-3.6 5 EMPLOYMENT/CONSULTING CONTRACTS 1 CONSULTING AGREEMENT THIS AGREEMENT dated for reference the 1st day of February, 1996 (the "Effective Date"). BETWEEN: OPTIMA PETROLEUM CORPORATION, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; (the "Company") AND: HODGKINSON EQUITIES CORPORATION, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; (the "Consultant") WHEREAS the Company has agreed to hire the Consultant and the Consultant has agreed to provide his services to the Company on the terms and conditions hereinafter set forth. NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements herein contained, the parties hereto agree (the "Agreement") as follows: 1. RETAINER 1.1 The Company hereby retains the services of the Consultant, and in particular its principal shareholder, Robert L. Hodgkinson ("RLH") to provide to the Company, the services normally expected of a president and chief executive officer (the "services"), and the Consultant hereby agrees to provide such services to the Company upon the terms and conditions contained in this Agreement. 2. DURATION OF SERVICE 2.1 Subject to termination as provided for in section 7, this Agreement shall be for an initial term of 23 months commencing on the Effective Date. Provided that this Agreement has not been terminated by either party pursuant to section 7, the Company may renew this Agreement for further one year terms by providing to the Consultant written notice of same at least 30 days prior to the expiration of the current term or the renewal term, as the case may be. 2 3. REMUNERATION 3.1 The Consultant shall be paid a fee of $12,500 per month payable for each calendar month on the last business day of such month. 3.2 Subject to all necessary regulatory approvals, the Consultant shall be entitled to: (a) the grant of 200,000 stock options pursuant the Company's stock option plan, such stock options to have the following terms: (i) they will be non-transferable and have a term of three years commencing from the date regulatory approval is obtained; (ii) they will be exercisable at the lowest price permitted by the applicable regulatory authorities; (iii) they will otherwise be subject to the terms and conditions normally required by the applicable regulatory authorities in order to secure regulatory approval. 3.3 The Consultant shall be reimbursed for all reasonable travelling and other out-of-pocket expenses actually and properly incurred by him in connection with his duties hereunder provided that the Consultant first furnishes statements and vouchers for all such expenses to the Company. Individual expense items in excess of $12,500 must be preapproved by the Company. 4. DUTIES OF CONSULTANT 4.1 The Consultant shall have, subject always to the general or specific instructions and directions of the board of directors of the Company (the "Board"), full power and authority to manage the business and affairs of the Company that would normally be managed by a senior officer having the title and capacity of RLH, except in respect of such matters and duties as by law must be transacted or performed by the Board. 4.2 The Consultant shall: (a) conform to all lawful instructions and directions from time to time given to him by the Board; (b) devote sufficient time and attention to the business and affairs of the Company, as would typically be expected of a president and chief executive officer; - 2 - 3 (c) well and faithfully serve the Company and use his best efforts to promote the interests of the Company; (d) provide to the Company those services normally expected of a president and chief executive officer; and (e) consent to serve as a director of the Company and, if requested, of any of the Company's affiliates or subsidiaries. 4.3 Subject to the provisions of the Canada Business Corporations Act, the bylaws of the Company and provided that RLH acted honestly and in good faith with a view to the best interests of the Company, or, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful, and the directors of the Company shall cause the Company to indemnify the Consultant and RLH and his heirs and personal representatives against all costs, damages, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or them and resulting from RLH acting as a director and officer of the Company in his normal course of duties. In addition, should the directors cause the Company to purchase and maintain insurance for the benefit of any person who is or was serving as a director of the Company then the directors shall also cause the Company to purchase and maintain insurance for the benefit of the Consultant against any and all liability incurred by him as a director and officer of the Company. 5. CONFIDENTIALITY 5.1 Unless permitted by resolution of the Directors of the Company (excluding RLH if he is a Director), the Consultant shall not, during the term of this Agreement or at any time thereafter, use for his own purposes or for any purposes other than those of the Company any intellectual property or knowledge or confidential information of any kind whatsoever he may acquire in relation to the Company's business or the business of its subsidiaries, and such shall be and remain the property of the Company. 6. NON-COMPETITION 6.1 Subject to paragraph 7.2, the Consultant shall not, without the prior written consent of the Company, which consent (given by a Director other than the Consultant), will not be unreasonably withheld, during the term of this Agreement and during the six month period immediately following the termination of this Agreement, within the area in which the Company operated at the time of termination (the "Prohibited Area"): (a) directly or knowingly indirectly engage in or become financially interested in (otherwise then through an investment in a publicly traded or private entity in - 3 - 4 which the Consultant has no other interest or control), either individually or as a partner, shareholder, agent, manager, owner, advisor or financial backer of any person, persons, firm, association, venture, entity or corporation of any kind whatsoever that carries on the business of oil and gas exploration, development or production (collectively the "Prohibited Businesses"); or (b) divert or attempt to divert any business of the Company or of any of its subsidiaries, to any other competitive establishment, by direct or indirect inducement or otherwise. 6.2 The Company acknowledges and consents to the ongoing participation of the Consultant and RLH in Australian Oilfields Pty Ltd. as a consultant, director, officer and shareholder. 7. TERMINATION 7.1 Either of the parties hereto may, subject to paragraph 7.2 hereof, give to the other three months notice in writing of its intention to terminate this Agreement and on the expiration of such period this Agreement shall be wholly terminated. Such three months notice may expire on any day of the month and any remuneration payable hereunder shall be proportioned to the date of such termination. 7.2 In the event of a merger, takeover or amalgamation or change of control of the Company which results in a termination of the Consultant's services at any time prior to December 31, 1997, the provisions of paragraph 6.1 will not apply to such a termination and the Company will pay to the Consultant an amount equal to 24 months of fees under this Agreement. The Consultant agrees to accept the termination payment in full satisfaction of any claim it may have against the Company whether under the terms of this Agreement or otherwise. 7.3 Notwithstanding anything else contained herein, the Company may at any time terminate the Consultant's services for cause or if the Consultant fails to perform or comply with any material term or condition of this Agreement. In the event the Consultant's services are terminated under the provisions of this paragraph 7.4, or in the event the Consultant gives the Company notice of termination, no compensation whatever shall be payable to the Consultant after such termination. 8. REGULATORY APPROVAL 8.1 This Agreement is subject to all necessary regulatory approvals. If such approvals are not obtained, this Agreement shall terminate and be of no further force and effect. - 4 - 5 8.2 The Company agrees to use its reasonable best efforts as to implement the terms of this Agreement including, but not limited to, obtaining all approvals from the Company's shareholders to the allocation of stock options to the Officer as provided for in paragraph 3.2 hereof. 9. General 9.1 The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof. 9.2 Time is hereby expressly made of the essence of this Agreement with respect to the performance by the parties of their respective obligations under this Agreement. 9.3 This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. This Agreement may not be assigned by either party hereto without the prior express written consent of the other party. 9.4 This Agreement supersedes all prior agreements entered into between the parties and constitutes the entire agreement between the parties hereto relating to the subject matter hereof and may not be amended, waived or discharged except by an instrument in writing executed by the party against whom enforcement of such amendment, waiver or discharge is sought and this Agreement supersedes all prior agreements between the parties. 9.5 Each of the parties hereto hereby covenants and agrees to execute such further and other documents and instruments and do such further acts and other things as may be necessary to implement and carry out the intent of this Agreement. 9.6 All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed by postage prepaid double registered mail addressed as follows: To the Company: OPTIMA PETROLEUM CORPORATION, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; Attention: The President - 5 - 6 To the Consultant: HODGKINSON EQUITIES CORPORATION, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; Attention: The President or to such other address as may be given in writing by the Company or the Consultant and shall be deemed to have been received, if delivered, on the date of delivery and if mailed as aforesaid at Vancouver, British Columbia then on the third business day following the posting thereof. IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written. OPTIMA PETROLEUM CORPORATION Per: /s/ Ronald P. Bourgeois ----------------------- Authorized Signatory HODGKINSON EQUITIES CORPORATION Per: /s/ Robert L Hodgkinson _______________________ Authorized Signatory - 6 - 7 CONSULTING AGREEMENT MEMORANDUM OF AGREEMENT made as of the 1st day of February, 1995. BETWEEN: LEUSCHNER INTERNATIONAL RESOURCES LTD. 1200 Bow Valley Square One 202 - 6th Avenue S.W. Calgary, A.B. T2P 2R9 William C. Leuschner, President (hereinafter called the "Consultant") OF THE FIRST PART AND: OPTIMA PETROLEUM CORPORATION, a company incorporated under the laws of the Province of British Columbia and Alberta having its office at #600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5. (hereinafter called the "Company") OF THE SECOND PART THIS AGREEMENT WITNESSETH that in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration it is hereby agreed as follows: 1. The Consultant shall serve the Company in such capacity or capacities as may from time to time be determined by the management of the Company. 2. The contract of the Consultant hereunder shall commence on February 1, 1995 and continue until terminated as hereinafter provided. 3. The contract of the Consultant hereunder may be terminated in the following manner in the following circumstances: (a) at any time by notice in writing from the Company to the Consultant for cause; (b) by not less than 30 days notice in writing given by either party to the other, which notice in writing may be given at any time; (c) contract subject to review at twelve month intervals. 8 4. Upon any notice being given pursuant to subparagraph 3(a) herein or upon the expiration of the said period of 30 days referred to in subparagraph 3(b) and subparagraph 3(c) herein, as the case may be, this Agreement and the contract of the Consultant hereunder shall be wholly terminated and determined, except paragraphs 8, 9 and 10 herein, which shall continue in full force and effect. Upon any such termination, the Consultant shall have no claim against the Company for damages or otherwise except in respect of payment of remuneration as provided for in paragraph 6 to the effective date of termination. 5 (a) The Consultant shall devote said time to the Company as required in order to carry out the duties determined in accordance with paragraph I herein; (b) During the continuance of his contract hereunder, the Consultant shall well and faithfully serve the Company including, without limiting the generality of the foregoing, the submission to the Company of all reports and other communications whenever the same may be required by the Company, and shall use, at all times, his best efforts to; 6 (a) The remuneration of the Consultant for his services hereunder shall be at a rate of $150,000 per annum, payable $8,000.00 on a monthly basis in arrears, plus 1,285 common shares of Optima Petroleum Corporation on a monthly basis in arrears, or such other remuneration as may from time to time be mutually agreed upon in writing between the Company and the Consultant; (b) Where stock options comprise a part of the remuneration, such options should be for a three year term, exercisable at the rate of one third per year unless otherwise approved by the option committee. (c) The Consultant shall be reimbursed for travelling and other out-of-pocket expenses actually and properly incurred by his in connection with his duties only with prior approval from the Company and upon furnishment of statements and vouchers as and when required by it. 7. The Consultant shall not (either during the continuance of his contract by the Company or at any time thereafter) disclose the private affairs of the Company or any secrets of the Company to any person other than to the directors of the Company or those persons who the Company shall, in writing, approve of and shall not (either during the continuance of his contract by the Company or at any time thereafter) use for his own purposes or for any purpose of other than those of the Company any such information he may acquire in relation to the Company's business. 9 8. The Consultant agrees that all trade secrets and secret information (including trade secrets and secret information discovered or developed by the Consultant or discovered or developed by others and used by or disclosed to the Consultant) which he may acquire respecting any matters relating to oil and gas exploration on the Company's properties, during his term of contract hereunder shall at all times (both during the continuance of his contract by the Company an at all times thereafter) and for all purposes be held by the Consultant in a fiduciary capacity and solely for the benefit of the Company and the Consultant agrees that he will not (either during the continuance of his contract by the Company or any time thereafter) use for his own purpose any trade secret or secret information aforesaid or disclose, divulge or communicate orally, in writing or otherwise to any person or persons any trade secret or secret information aforesaid, except such information which, by any applicable securities laws, is required to be publicly disclosed. 9. Any notice in writing required or permitted to be given to the Company or the Consultant hereunder shall be properly given if delivered to the Consultant personally or mailed by registered mail, postage prepaid, addressed to the Consultant at the address set out above. Any such notice mailed as aforesaid shall be deemed to have been received by and given to the Consultant on the day following the date of mailing. Either party may at any time give notice in writing to the other of any change of address of the party giving such notice and from and after the giving of such notice, the address therein specified shall be deemed to be the address of such party for the giving of notices hereunder. 10. Any and all previous agreements, written or oral, between the parties hereto or on their behalf relating to the contract of the Consultant by the Company are hereby terminated and cancelled and each of the parties hereto hereby releases and forever discharges the other party hereto of and from all manner of actions, causes of action, claims and demands whatsoever under or in respect of any such agreement. 11. This Agreement shall be deemed to have been made in and shall be construed in accordance with the laws of the Province of British Columbia and for the purposes of all legal proceedings, this Agreement shall be deemed to have been performed in such Province and the courts of such Province shall have jurisdiction to entertain any action arising under this Agreement; provided always that nothing herein contained shall prevent the Company from proceeding at its election against the Consultant in the courts of any other province or country in which the Consultant resides. 12. It is agreed by and between the parties hereto that this Agreement is subject to being accepted for filing by the respective regulatory bodies. 10 13. The provisions hereof, where the context permits, shall enure to the benefit of and be binding upon the heirs, executors, administrators and legal personal representatives of the Consultant and the successors and assigns of the Company respectively. When the context so requires or permits, the masculine gender should be read as if the feminine were expressed. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written. THE CORPORATE SEAL of LEUSCHNER INTERNATIONAL RESOURCES LTD. /s/ William C. Leuschner - --------------------------------------- William C. Leuschner, President - --------------------------------------- THE CORPORATE SEAL of OPTIMA PETROLEUM CORPORATION was hereunto affixed in the presence of: /s/ Robert L. Hodgkinson - --------------------------------------- Robert L. Hodgkinson, President 11 CONSULTING AGREEMENT THIS AGREEMENT dated for reference the 1st day of January, 1996 (the "Effective Date"). BETWEEN: OPTIMA PETROLEUM CORPORATION, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; (the "Company") AND: RONALD P. BOURGEOIS, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; (the "Consultant") WHEREAS the Company has agreed to hire the Consultant and the Consultant has agreed to provide his services to the Company on the terms and conditions hereinafter set forth. NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements herein contained, the parties hereto agree (the "Agreement") as follows: 1. RETAINER 1.1 The Company hereby retains the services of the Consultant to provide to the Company, the services normally expected of a secretary and chief financial officer (the "services"), and the Consultant hereby agrees to provide such services to the Company upon the terms and conditions contained in this Agreement. 2. DURATION OF SERVICE 2.1 Subject to termination as provided for in section 7, this Agreement shall be for an initial term of 24 months commencing on the Effective Date. Provided that this Agreement has not been terminated by either party pursuant to section 7, the Company may renew this Agreement for further one year terms by providing to the Consultant written notice of same at least 30 days prior to the expiration of the current term or the renewal term, as the case may be. 12 3. REMUNERATION 3.1 The Consultant shall be paid a monthly fee per month payable for each calendar month on the last business day of such month consisting of: (a) $8,000; and (b) subject to all necessary regulatory approvals, 500 shares of the Company issued at a deemed price of $3.63 per share. 3.2 The Company will pay the monthly fee for maintaining a disability insurance policy for the Consultant which provides coverage for the Consultant of $6,000 per month pursuant to the terms of policy. 3.3 Subject to all necessary regulatory approvals, the Consultant shall be entitled to: (a) the grant of 150,000 stock options pursuant the Company's stock option plan, such stock options to have the following terms: (i) they will be non-transferable and have a term of three years commencing from the date regulatory approval is obtained; (ii) they will be exercisable at the lowest price permitted by the applicable regulatory authorities; (iii) they will otherwise be subject to the terms and conditions normally required by the applicable regulatory authorities in order to secure regulatory approval. 3.4 The Consultant shall be reimbursed for all reasonable travelling and other out-of-pocket expenses actually and properly incurred by him in connection with his duties hereunder provided that the Consultant first furnishes statements and vouchers for all such expenses to the Company. Individual expense items in excess of $12,500 must be pre-approved by the Company. 3.5 At the request of the Board, the Consultant shall devote a specified portion of his time to an affiliated company of the Company, in which case the remuneration payable pursuant to this section 3 will be apportioned between and be payable by the Company and the affiliated company. - 2 - 13 3.6 The Consultant shall be eligible for a bonus of $5,000, payable in cash or an equivalent paid holiday as agreed to by the Company and the Consultant, upon the successful completion of the sale of the Company's Elm Grove assets. 4. DUTIES OF CONSULTANT 4.1 The Consultant shall have, subject always to the general or specific instructions and directions of the board of directors of the Company (the "Board"), full power and authority to manage the business and affairs of the Company that would normally be managed by a senior officer having the title and capacity of the Consultant, except in respect of such matters and duties as by law must be transacted or performed by the Board. 4.2 The Consultant shall: (a) conform to all lawful instructions and directions from time to time given to him by the Board; (b) devote sufficient time and attention to the business and affairs of the Company, as would typically be expected of a secretary and chief financial officer; (c) well and faithfully serve the Company and use his best efforts to promote the interests of the Company; (d) provide to the Company those services normally expected of a secretary and chief financial officer; and (e) consent to serve as a director of the Company and, if requested, of any of the Company's affiliates or subsidiaries. 4.3 Subject to the provisions of the Canada Business Corporations Act, the bylaws of the Company and provided that the Consultant acted honestly and in good faith with a view to the best interests of the Company, or, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful, and the directors of the Company shall cause the Company to indemnify the Consultant and his heirs and personal representatives against all costs, damages, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or them and resulting from his acting as a director and officer of the Company in his normal course of duties. In addition, should the directors cause the Company to purchase and maintain insurance for the benefit of any person who is or was serving as a director of the Company then the directors shall also cause the Company to purchase and maintain insurance for the benefit of the Consultant against any and all liability incurred by him as a director and officer of the Company. - 3 - 14 5. CONFIDENTIALITY 5.1 Unless permitted by resolution of the Directors of the Company (excluding the Consultant if he is a Director), the Consultant shall not, during the term of this Agreement or at any time thereafter, use for his own purposes or for any purposes other than those of the Company any intellectual property or knowledge or confidential information of any kind whatsoever he may acquire in relation to the Company's business or the business of its subsidiaries, and such shall be and remain the property of the Company. 6. NON-COMPETITION 6.1 Subject to paragraph 7.2, the Consultant shall not, without the prior written consent of the Company, which consent (given by a Director other than the Consultant), will not be unreasonably withheld during the term of this Agreement and during the six month period immediately following the termination of this Agreement, within the area in which the Company operated at the time of termination (the "Prohibited Area"): (a) directly or knowingly indirectly engage in or become financially interested in (otherwise then through an investment in a publicly traded or private entity in which the Consultant has no other interest or control), either individually or as a partner, shareholder, agent, manager, owner, advisor or financial backer of any person, persons, firm, association, venture, entity or corporation of any kind whatsoever that carries on the business of oil and gas exploration, development or production (collectively the "Prohibited Businesses"); or (b) divert or attempt to divert any business of the Company or of any of its subsidiaries, to any other competitive establishment, by direct or indirect inducement or otherwise. 7. TERMINATION 7.1 Either of the parties hereto may, notwithstanding anything else contained herein, give to the other three months notice in writing of its intention to terminate this Agreement and on the expiration of such period this Agreement shall be wholly terminated. Such three months notice may expire on any day of the month and any remuneration payable hereunder shall be proportioned to the date of such termination. 7.2 In the event the Company terminates the Consultant's services pursuant to paragraph 7.1 at any time prior to December 31, 1997, the provisions of paragraph 6.1 will not apply to such a termination and the Company will pay to the Consultant an amount equal to 24 months of fees under this Agreement. - 4 - 15 7.3 The Consultant agrees to accept the termination payment in full satisfaction of any claim it may have against the Company whether under the terms of this Agreement or otherwise. 7.4 Notwithstanding paragraph 7.1 hereof, the Company may at any time terminate the Consultant's services for cause or if the Consultant fails to perform or comply with any material term or condition of this Agreement. In the event the Consultant's services are terminated under the provisions of this paragraph 7.4, or in the event the Consultant gives the Company notice of termination, no compensation whatever shall be payable to the Consultant after such termination. 8. REGULATORY APPROVAL 8.1 This Agreement is subject to all necessary regulatory approvals. If such approvals are not obtained, this Agreement shall terminate and be of no further force and effect. 8.2 The Company agrees to use its reasonable best efforts as to implement the terms of this Agreement including, but not limited to, obtaining all approvals from the Company's shareholders to the allocation of stock options to the Officer as provided for in paragraph 3.2 hereof. 9. GENERAL 9.1 The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof. 9.2 Time is hereby expressly made of the essence of this Agreement with respect to the performance by the parties of their respective obligations under this Agreement. 9.3 This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. This Agreement may not be assigned by either party hereto without the prior express written consent of the other party. 9.4 This Agreement supersedes all prior agreements entered into between the parties and constitutes the entire agreement between the parties hereto relating to the subject - 5 - 16 matter hereof and may not be amended, waived or discharged except by an instrument in writing executed by the party against whom enforcement of such amendment, waiver or discharge is sought and this Agreement supersedes all prior agreements between the parties. 9.5 Each of the parties hereto hereby covenants and agrees to execute such further and other documents and instruments and do such further acts and other things as may be necessary to implement and carry out the intent of this Agreement. 9.6 All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed by postage prepaid double registered mail addressed as follows: To the Company: OPTIMA PETROLEUM CORPORATION, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; Attention: The President To the Consultant: RONALD P. BOURGEOIS, Suite 600 - 595 Howe Street, Vancouver, British Columbia, V6C 2T5; or to such other address as may be given in writing by the Company or the Consultant and shall be deemed to have been received, if delivered, on the date of delivery and if mailed as - 6 - 17 aforesaid at Vancouver, British Columbia then on the third business day following the posting thereof. IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written. OPTIMA PETROLEUM CORPORATION Per: /s/ Robert L. Hodgkinson ------------------------ Authorized Signatory SIGNED, SEALED AND DELIVERED ) by RONALD P. BOURGEOIS ) in the presence of: ) ) /s/ Michael Wilhelm ) /s/ RONALD P. BOURGEOIS - ----------------------------------- ) ------------------------- Signature of Witness ) RONALD P. BOURGEOIS ) Name: Michael Wilhelm ) ----------------------------- ) Address: 3329 W. 3rd Ave. ) -------------------------- ) Vancouver, B.C. ) - ----------------------------------- ) Occupation: Comptroller ) ----------------------- ) - 7 - EX-3.7 6 REGISTRANTS 4/3 STOCK OPTION PLAN 1 OPTIMA PETROLEUM CORPORATION STOCK OPTION PLAN DATED APRIL 3, 1995 Approved by the Board of Directors as of April 3, 1995. Approved by the Shareholders on June 22, 1995. 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 Definitions................................................... 1 1.2 Choice of Law................................................. 3 1.3 Headings...................................................... 3 ARTICLE II PURPOSE AND PARTICIPATION 2.1 Purpose....................................................... 3 2.2 Participation................................................. 3 2.3 Notification of Award......................................... 4 2.4 Copy of Plan.................................................. 4 2.5 Limitation.................................................... 4 ARTICLE III TERMS AND CONDITIONS OF OPTIONS 3.1 Board to Issue Shares......................................... 4 3.2 Number of Shares.............................................. 4 3.3 Term of Option................................................ 5 3.4 Termination of Option......................................... 5 3.5 Exercise Price................................................ 6 3.6 Additional Terms.............................................. 7 3.7 Assignment of Options......................................... 8 3.8 Adjustments................................................... 8 3.9 Approvals..................................................... 8 ARTICLE IV EXERCISE OF OPTION 4.1 Exercise of Option............................................ 8 4.2 Issue of Share Certificates................................... 8 4.3 Condition of Issue............................................ 9 ARTICLE V ADMINISTRATION 5.1 Administration................................................ 9 5.2 Interpretation................................................ 9 - i - 3 ARTICLE VI AMENDMENT AND TERMINATION 6.1 Prospective Amendment ........................................ 9 6.2 Retrospective Amendment ...................................... 10 6.3 Termination .................................................. 10 6.4 Agreement .................................................... 10 - ii - 4 STOCK OPTION PLAN ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 Definitions As used herein, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the meanings set forth below: (a) "Administrator" means, initially, the secretary of the Company and thereafter shall mean such director or other senior officer or employee of the Company as may be designated as Administrator by the Board from time to time. (b) "Award Date" means the date on which the board awards a particular Option. (c) "Board" means the board of directors of the Company. (d) "Canada Business Corporations Act" means the Canada Business Corporations Act, R.S.C. 1985, c.C-44 and any amendments thereto. (e) "Company" means Optima Petroleum Corporation, including its affiliates, as defined in the Canada Business Corporations Act. (f) "Director" means any individual holding the office of director of the Company. (g) "Employee" means any individual regularly employed on a full-time basis by the Company or any of its subsidiaries and such other individuals as may, from time to time, be permitted by the rules and policies of the applicable Regulatory Authorities to be granted options as employees or as an equivalent thereto. (h) "Exercise Notice" means the notice respecting the exercise of an Option, in the form set out as Schedule "B" hereto, duly executed by the Option Holder. (i) "Exercise Period" means the period during which a particular Option may be exercised and is the period from and including the Award Date through to and including the Expiry Date. (j) "Exercise Price" means the price at which an Option may be exercised as determined in accordance with paragraph 3.5. (k) "Expiry Date" means the date determined in accordance with paragraph 3.3 and after which a particular Option cannot be exercised. 5 (l) "Market Value" means the market value of the Company's Shares as determined in accordance with paragraph 3.5. (m) "Option" means an option to acquire Shares, awarded to a Director or Employee pursuant to the Plan. (n) "Option Certificate" means the certificate, in the form set out as Schedule "A" hereto, evidencing an Option. (o) "Option Holder" means a Director, Employee or Other Person, or former Director, Employee or Other Person, who holds directly or indirectly through a wholly owned holding company or registered retirement savings plan an unexercised and unexpired Option or, where applicable, the Personal Representative of such person. (p) "Other Persons" means other persons who provide services to the Company and who are entitled to receive options therefor pursuant to the rules of the Regulatory Authorities. (q) "Plan" means this stock option plan. (r) "Personal Representative" means: (i) in the case of a deceased Option Holder, the executor or administrator of the deceased duly appointed by a court or public authority having jurisdiction to do so; and (ii) in the case of an Option Holder who for any reason is unable to manage his or her affairs, the person entitled by law to act on behalf of such Option Holder. (s) "Regulatory Authorities" means all stock exchanges and other organized trading facilities on which the Company's Shares are listed and all securities commissions or similar securities regulatory bodies having jurisdiction over the Company. (t) "Share" or "Shares" means, as the case may be, one or more common shares without par value in the capital stock of the Company. 1.2 Choice of Law The Plan is established under and the provisions of the Plan shall be subject to and interpreted and construed in accordance with the laws of the Province of British Columbia. - 2 - 6 1.3 Headings The headings used herein are for convenience only and are not to affect the interpretation of the Plan. ARTICLE II PURPOSE AND PARTICIPATION 2.1 Purpose The purpose of the Plan is to provide the Company with a share-related mechanism to attract, retain and motivate qualified Directors, Employees and Other Persons, to reward such of those Directors, Employees and Other Persons as may be awarded Options under the Plan by the Board from time to time for their contributions toward the long term goals of the Company and to enable and encourage such Directors, Employees and Other Persons to acquire Shares as long term investments. 2.2 Participation The Board shall, from time to time and in its sole discretion, determine those Directors, Employees and Other Persons, if any, to whom Options are to be awarded. The Board may, in its sole discretion, grant the majority of the Options to insiders of the Company. However, in no case will the issuance of Shares under the Plan and under any proposed or existing share compensation arrangement result in: (a) the number of Shares reserved for issuance pursuant to Options granted: (i) to insiders exceeding 10% of the Company's issued and outstanding share capital; or (ii) to any one person exceeding 5% of the Company's issued and outstanding share capital; (b) the number of Shares issued within a one year period: (i) to insiders exceeding 10% of the Company's issued and outstanding share capital; or (ii) to any one insider and its associates exceeding 5% of the Company's issued and outstanding share capital. 2.3 Notification of Award - 3 - 7 Following the approval by the Board of the awarding of an Option, the Administrator shall notify the Option Holder in writing of the award and shall enclose with such notice the Option Certificate representing the Option so awarded. 2.4 Copy of Plan Each Option Holder, concurrently with the notice of the award of the Option, shall be provided with a copy of the Plan. A copy of any amendment to the Plan shall be promptly provided by the Administrator to each Option Holder. 2.5 Limitation The Plan does not give any Option Holder that is: (a) a Director the right to serve or continue to serve as a Director of the Company; (b) an Employee the right to be or to continue to be employed by the Company; or (c) an Other Person the right to be or continue to be retained by the Company to provide services to the Company. ARTICLE III TERMS AND CONDITIONS OF OPTIONS 3.1 Board to Issue Shares The Shares to be issued to Option Holders upon the exercise of Options shall be authorized and unissued Shares, the issuance of which shall have been authorized by the Board. 3.2 Number of Shares Subject to adjustment as provided for in paragraph 3.7 of this Plan, the aggregate maximum number of Shares which will be available for purchase pursuant to Options granted under this Plan will not exceed 1,200,000 Shares. If any Option expires or otherwise terminates for any reason without having been exercised in full, the number of Shares in respect of which the Option expired or terminated shall again be available for the purposes of the Plan. 3.3 Term of Option Subject to paragraph 3.4, the Expiry Date of an Option shall be the date so fixed by the Board at the time the particular Option is awarded, provided that such date shall be no later than the tenth anniversary of the Award Date of such Option. - 4 - 8 3.4 Termination of Option An Option Holder may exercise an Option in whole or in part at any time or from time to time during the Exercise Period provided that, with respect to the exercise of part of an Option, the Board may at any time and from time to time fix a minimum number of Shares in respect of which an Option Holder may exercise part of any Option held by such Option Holder. Any Option or part thereof not exercised within the Exercise Period shall terminate and become null, void and of no effect as of 5:00 p.m. local time in Vancouver, British Columbia on the Expiry Date. The Expiry Date of an Option shall be the earlier of the date so fixed by the Board at the time the Option is awarded and the date established, if applicable, in sub-paragraphs (a) to (d) below: (a) Death If the Option Holder should die while he or she is still entitled to exercise the Option, then the Expiry Date shall be the first anniversary of the Option Holder's date of death; or (b) Ceasing to hold Office If the Option Holder holds his or her Option as Director of the Company and then ceases to be a Director of the Company other than by reason of death, the Expiry Date of the Option shall be the 30th day following the date the Option Holder ceases to be a Director of the Company unless the Option Holder ceases to be a Director of the Company as a result of: (i) ceasing to meet the qualifications set forth in section 105 of the Canada Business Corporations Act; (ii) an ordinary resolution having been passed by the shareholders of the Company pursuant to section 109 of the Canada Business Corporations Act; or (iii) an order made by any Regulatory Authority having jurisdiction to so order; in which case the Expiry Date shall be the date the Option Holder ceases to be a Director of the Company. (c) Ceasing to be Employed If the Option Holder holds his or her Option as an Employee of the Company and then ceases to be an Employee of the Company other than by reason of death, the Expiry Date of the Option shall be the 30th day following the date the Option - 5 - 9 Holder ceases to be an Employee of the issuer unless the Option Holder ceases to be an Employee of the Company as a result of: (i) termination for cause; or (ii) an order made by any Regulatory Authority having jurisdiction to so order; in which case the Expiry Date shall be the date the Option Holder ceases to be an Employee of the Company. (d) Ceasing to Provide Services If the Option Holder holds his or her Option as an Other Person of the Company and then ceases to provide services to the Company other than by reason of death, the Expiry Date of the Option shall be the 30th day following the date the Option Holder ceases to provide services to the Company as a result of (i) termination for cause; or (ii) an order made by any Regulatory Authority having jurisdiction to so order; in which case the Expiry Date shall be the date the Option Holder ceases to provide services to the Company. (e) Holding Company Ceasing to be Wholly-Owned If the Option Holder holds his or her Option indirectly through a wholly-owned holding company, the Expiry Date shall be the date the Option Holder ceases to wholly-own such holding company. 3.5 Exercise Price The price at which an Option Holder may purchase a Share upon the exercise of an Option shall be as set forth in the Option Certificate issued in respect of such Option and in any event shall not be less than the Market Value of the Company's Shares as of the Award Date. The Market Value of the Company's Shares for a particular Award Date shall be determined as follows: (a) if the Company's Shares are listed on more than one organized trading facility, then Market Value shall be the simple average of the Market Values determined for each organized trading facility on which those Shares are listed as determined for each organized trading facility in accordance with subparagraphs (b) and (c) below; - 6 - 10 (b) for each organized trading facility on which the Shares are listed, Market Value will be the weighted average trading price of the Shares for those days that the Shares traded over the ten trading day period immediately preceding the Award Date; (c) if the Company's Shares trade on an organized trading facility outside of Canada, then the Market Value determined for that organized trading facility will be converted into Canadian dollars at a conversion rate determined by the Administrator having regard for the published conversion rates as of the Award Date; (d) if the Company's Shares are listed on one or more organized trading facilities but have not traded during the ten trading day period immediately preceding the Award Date, then the Market Value will be, subject to the necessary approvals of the applicable Regulatory Authorities, that value as is determined by resolution of the Board; and (e) if the Company's Shares are not listed on an organized trading facility, then the Market Value will be, subject to the necessary approvals of the applicable Regulatory Authorities, that value as is determined by resolution of the Board. 3.6 Additional Terms Subject to all applicable securities laws and regulations and the rules and policies of all applicable Regulatory Authorities, the Board may attach other terms and conditions to the grant of a particular Option, such terms and conditions to be referred to in a schedule attached to the Option Certificate. These terms and conditions may include, but are not necessarily limited to, the following: (a) providing that an Option expires on the date the Option Holder ceases to be a Director or Employee of the Company or, if an Other Person, ceases to provide services to the Company; (b) providing that a portion or portions of an Option vest after certain periods of time or expire after certain periods of time; and (c) providing that an Option be exercisable immediately, in full, notwithstanding that it has vesting provisions, upon the occurrence of certain events, such as a friendly or hostile takeover bid for the Company. - 7 - 11 3.7 Assignment of Options Options may not be assigned or transferred, provided that the Personal Representative of an Option Holder may, to the extent permitted by paragraph 4.1, exercise the Option within the Exercise Period. 3.8 Adjustments If, prior to the complete exercise of any Option, the Shares are consolidated, subdivided, converted, exchanged or reclassified or in any way substituted for (collectively the "Event"), an Option, to the extent that it has not been exercised, shall be adjusted by the Board in accordance with such Event in the manner the Board deems appropriate. No fractional shares shall be issued upon the exercise of the Options and accordingly, if as a result of the Event, an Option Holder would become entitled to a fractional share, such Option Holder shall have the right to purchase only the next lowest whole number of shares and no payment or other adjustment will be made with respect to the fractional interest so disregarded. 3.9 Approvals This Plan and any amendments hereto are subject to all necessary approvals of the applicable Regulatory Authorities. ARTICLE IV EXERCISE OF OPTION 4.1 Exercise of Option An Option may be exercised only by the Option Holder or the Personal Representative of any Option Holder. An Option Holder or the Personal Representative of any Option Holder may exercise an Option in whole or in part at any time or from time to time during the Exercise Period up to 5:00 p.m. local time in British Columbia on the Expiry Date by delivering to the Administrator an Exercise Notice, the applicable Option Certificate and a certified cheque or bank draft payable to "Optima Petroleum Corporation" in an amount equal to the aggregate Exercise Price of the Shares to be purchased pursuant to the exercise of the Option. 4.2 Issue of Share Certificates As soon as practicable following the receipt of the Exercise Notice, the Administrator shall cause to be delivered to the Option Holder a certificate for the Shares so purchased and if the Option has not been completely exercised, the Administrator shall concurrently forward a new Option Certificate to the Option Holder for the balance of Shares available under the Option. - 8 - 12 4.3 Condition of Issue The Options and the issue of Shares by the Company pursuant to the exercise of Options are subject to the terms and conditions of this Plan and to compliance with the applicable securities laws, regulations, rules and policies of the Regulatory Authorities. The Option Holder agrees to comply with all such laws, regulations, rules and policies and agrees to furnish to the Company any information, report and/or undertakings required to comply with, and to fully cooperate with the Company in complying with, such laws, regulations, rules and policies. ARTICLE V ADMINISTRATION 5.1 Administration The Plan shall be administered by the Administrator on the instructions of the Board. The Board may make, amend and repeal at any time and from time to time such regulations not inconsistent with the Plan as it may deem necessary or advisable for the proper administration and operation of the Plan and such regulations shall form part of the Plan. The Board may delegate to the Administrator, to any Director, officer or employee of the Company or to a committee consisting of such persons such administrative duties and powers as it may see fit. 5.2 Interpretation The interpretation by the Board of any of the provisions of the Plan and any determination by it pursuant thereto shall be final and conclusive and shall not be subject to any dispute by any Option Holder. No member of the Board or any personal acting pursuant to authority delegated by it hereunder shall be liable for any action or determination in connection with the Plan made or taken in good faith and each member of the Board and each such person shall be entitled to indemnification with respect to any such action or determination in the manner provided for by the Company. ARTICLE VI AMENDMENT AND TERMINATION 6.1 Prospective Amendment The Board may from time to time amend the Plan and the terms and conditions of any Option to be granted and, without limitation, may make amendments for the purpose of meeting any changes in any relevant law, rule or regulation applicable to the Plan, any Option or the Shares, or for any other purpose which may be permitted by all relevant laws, regulations, rules and policies provided that any such amendment shall not alter the terms or conditions of any Option - 9 - 13 or impair any right of any Option Holder pursuant to any Option awarded prior to such amendment. 6.2 Retrospective Amendment The Board may from time to time, subject to any necessary approvals of the Regulatory Authorities, retrospectively amend the Plan and, with the consent of the affected Option Holders, retrospectively amend the terms and conditions of any Options which have been previously granted. 6.3 Termination The Board may terminate the Plan at any time provided that any Option awarded prior to the date of such termination and the rights of the Option Holder of such Option shall continue to be governed by the provisions of the Plan. 6.4 AGREEMENT THE COMPANY AND EVERY OPTION AWARDED HEREUNDER SHALL BE BOUND BY AND SUBJECT TO THE TERMS AND CONDITIONS OF THE PLAN. BY ACCEPTING AN OPTION GRANTED HEREUNDER, THE OPTION HOLDER HAS EXPRESSLY AGREED WITH THE COMPANY TO BE BOUND BY THE TERMS OF THE PLAN. - 10 - 14 SCHEDULE "A" OPTIMA STOCK OPTION PLAN OPTION CERTIFICATE This Certificate is issued pursuant to the provisions of the Optima Petroleum Corporation ("Optima") Stock Option Plan (the "Plan") and evidences that ___________________ is the holder (the "Option Holder") of an option (the "Option") to purchase up to ________ common shares (the "Shares") in the capital stock of Optima at a purchase price of $_________ per Share. Subject to the provisions of the Plan: (a) the Award Date of this Option is _____________, 19_; and (b) the Expiry Date of this Option is ______________, 19__. This Option may be exercised at any time and from time to time from and including the Award Date through to and including up to 5:00 local time in Vancouver, British Columbia on the Expiry Date by delivery to the Administrator of the Plan an Exercise Notice, in the form provided in the Plan, together with this Certificate and a certified cheque or bank draft payable to "Optima Petroleum Corporation" in an amount equal to the aggregate of the Exercise Price of the Shares in respect of which this Option is being exercised. This Certificate and the Option evidenced hereby is not assignable, transferable or negotiable and is subject to the detailed terms and conditions contained in the Plan, the terms and conditions of which the Option Holder hereby expressly agrees with Optima to be bound by. This Certificate is issued for convenience only and in the case of any dispute with regard to any matter in respect hereof, the provisions of the Plan and the records of Optima shall prevail. This Option is also subject to the terms and conditions contained in the schedules, if any, attached hereto. The foregoing Option has been awarded this ________ day of _________ 19__. OPTIMA PETROLEUM CORPORATION Per: ___________________ - 11 - 15 SCHEDULE "B" OPTIMA STOCK OPTION PLAN NOTICE OF EXERCISE OF OPTION TO: The Administrator, Stock Option Plan Optima Petroleum Corporation Suite 600 - 595 Howe Street Vancouver, B.C. V6C 2T5 The undersigned hereby irrevocably gives notice, pursuant to the Optima Petroleum Corporation ("Optima") Stock Option Plan (the "Plan"), of the exercise of the Option to acquire and hereby subscribes for (CROSS OUT INAPPLICABLE ITEM): (a) all of the Shares; or (b) _________________ of the Shares; which are the subject of the Option Certificate attached hereto. The undersigned tenders herewith a certified cheque or bank draft (CIRCLE ONE) payable to "Optima Petroleum Corporation" in an amount equal to the aggregate Exercise Price of the aforesaid shares and directs Optima to issue the certificate evidencing said shares in the name of the undersigned to be mailed to the undersigned at the following address: _________________________________ _________________________________ _________________________________ _________________________________ DATED the ________ day of __________________ 19__. ______________________________ SIGNATURE OF OPTION HOLDER - 12 - EX-3.8 7 REGISTRANT'S 4/10 STOCK OPTION PLAN 1 OPTIMA PETROLEUM CORPORATION STOCK OPTION PLAN dated April 10, 1996 Approved by the Board of Directors as of April 10, 1996, Approved by the Shareholders on May 24, 1996. 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 Definitions................................................ 1 1.2 Choice of Law.............................................. 2 1.3 Headings................................................... 3 ARTICLE 11 PURPOSE AND PARTICIPATION 2.1 Purpose.................................................... 3 2.2 Participation.............................................. 3 2.3 Notification of Award...................................... 4 2.4 Copy of Plan............................................... 4 2.5 Limitation................................................. 4 ARTICLE III TERMS AND CONDITIONS OF OPTIONS 3.1 Board to Issue Shares...................................... 4 3.2 Number of Shares........................................... 4 3.3 Term of Option............................................. 5 3.4 Termination of Option...................................... 5 3.5 Exercise Price............................................. 6 3.6 Additional Terms........................................... 7 3.7 Assignment of Options...................................... 8 3.8 Adjustments................................................ 8 3.9 Approvals.................................................. 8 ARTICLE IV EXERCISE OF OPTION 4.1 Exercise of Option......................................... 8 4.2 Issue of Share Certificates................................ 8 4.3 Condition of Issue......................................... 9 ARTICLE V ADMINISTRATION 5.1 Administration............................................. 9 5.2 Interpretation............................................. 9 5.3 Status of Option granted under Previous Plans.............. 9 - i - 3 ARTICLE VI AMENDMENT AND TERMINATION 6.1 Prospective Amendment...................................... 9 6.2 Retrospective Amendment.................................... 10 6.3 Termination................................................ 10 6.4 Agreement.................................................. 10 - ii - 4 STOCK OPTION PLAN ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 Definitions As used herein, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the meanings set forth below: (a) "Administrator" means, initially, the secretary of the Company and thereafter shall mean such director or other senior officer or employee of the Company as may be designated as Administrator by the Board from time to time. (b) "Award Date" means the date on which the board awards a particular Option. (c) "Board" means the board of directors of the Company. (d) "Canada Business Corporations Act" means the Canada Business Corporations Act, R.S.C. 1985, c.C-44 and any amendments thereto. (e) "Company" means Optima Petroleum Corporation, including its affiliates, as defined in the Canada Business Corporations Act. (f) "Director" means any individual holding the office of director of the Company. (g) "Employee" means any individual regularly employed on a full-time basis by the Company or any of its subsidiaries and such other individuals as may, from time to time, be permitted by the rules and policies of the applicable Regulatory Authorities to be granted options as employees or as an equivalent thereto. (h) "Exercise Notice" means the notice respecting the exercise of an Option, in the form set out as Schedule "B" hereto, duly executed by the Option Holder. (i) "Exercise Period" means the period during which a particular Option may be exercised and is the period from and including the Award Date through to and including the Expiry Date. (j) "Exercise Price" means the price at which an Option may be exercised as determined in accordance with paragraph 3.5. (k) "Expiry Date" means the date determined in accordance with paragraph 3.3 and after which a particular Option cannot be exercised. 5 (l) "Market Value" means the market value of the Company's Shares as determined in accordance with paragraph 3.5. (m) "Option" means an option to acquire Shares. awarded to a Director or Employee pursuant to the Plan. (n) "Option Certificate" means the certificate, in the form set out as Schedule "A" hereto, evidencing an Option. (o) "Option Holder" means a Director, Employee or Other Person, or former Director, Employee or Other Person, who holds directly or indirectly through a wholly owned holding company or registered retirement savings plan an unexercised and unexpired Option or, where applicable, the Personal Representative of such person. (p) "Other Persons" means other persons who provide services to the Company and who are entitled to receive options therefor pursuant to the rules of the Regulatory Authorities. (q) "Plan" means this stock option plan. (r) "Personal Representative" means: (i) in the case of a deceased Option Holder, the executor or administrator of the deceased duly appointed by a court or public authority having jurisdiction to do so; and (ii) in the case of an Option Holder who for any reason is unable to manage his or her affairs, the person entitled by law to act on behalf of such Option Holder. (s) "Regulatory Authorities" means all stock exchanges and other organized trading facilities on which the Company's Shares are listed and all securities commissions or similar securities regulatory bodies having jurisdiction over the Company. (t) "Share" or "Shares" means, as the case may be, one or more common shares without par value in the capital stock of the Company. 1.2 Choice of Law The Plan is established under and the provisions of the Plan shall be subject to and interpreted and construed in accordance with the laws of the Province of British Columbia. - 2 - 6 1.3 Headings The headings used herein are for convenience only and are not to affect the interpretation of the Plan. ARTICLE 11 PURPOSE AND PARTICIPATION 2.1 Purpose The purpose of the Plan is to provide the Company with a share-related mechanism to attract, retain and motivate qualified Directors, Employees and Other Persons, to reward such of those Directors, Employees and Other Persons as may be awarded Options under the Plan by the Board from time to time for their contributions toward the long term goals of the Company and to enable and encourage such Directors, Employees and Other Persons to acquire Shares as long term investments. 2.2 Participation The Board shall, from time to time and in its sole discretion, determine those Directors, Employees and Other Persons, if any, to whom Options are to be awarded. The Board may, in its sole discretion, grant the majority of the Options to insiders of the Company. However, in no case will the issuance of Shares under the Plan and under any proposed or existing share compensation arrangement result in: (a) the number of Shares reserved for issuance pursuant to Options granted: (i) to insiders exceeding 10% of the Company's issued and outstanding share capital; or (ii) to any one person exceeding 5% of the Company's issued and outstanding share capital; (b) the number of Shares issued within a one year period: (i) to insiders exceeding 10% of the Company's issued and outstanding share capital; or (ii) to any one insider and its associates exceeding 5% of the Company's issued and outstanding share capital. - 3 - 7 2.3 Notification of Award Following the approval by the Board of the awarding of an Option, the Administrator shall notify the Option Holder in writing of the award and shall enclose with such notice the Option Certificate representing the Option so awarded. 2.4 Copy of Plan Each Option Holder, concurrently with the notice of the award of the Option, shall be provided with a copy of the Plan. A copy of any amendment to the Plan shall be promptly provided by the Administrator to each Option Holder. 2.5 Limitation The Plan does not give any Option Holder that is: (a) a Director the right to serve or continue to serve as a Director of the Company; (b) an Employee the right to be or to continue to be employed by the Company; or (c) an Other Person the right to be or continue to be retained by the Company to provide services to the Company. ARTICLE III TERMS AND CONDITIONS OF OPTIONS 3.1 Board to Issue Shares The Shares to be issued to Option Holders upon the exercise of Options shall be authorized and unissued Shares, the issuance of which shall have been authorized by the Board. 3.2 Number of Shares Subject to adjustment as provided for in paragraph 3.7 of this Plan, the aggregate maximum number of Shares which will be available for purchase pursuant to Options granted under this Plan will not exceed 750,000 Shares. If any Option expires or otherwise terminates for any reason without having been exercised in full, the number of Shares in respect of which the Option expired or terminated shall again be available for the purposes of the Plan. - 4 - 8 3.3 Term of Option Subject to paragraph 3.4, the Expiry Date of an Option shall be the date so fixed by the Board at the time the particular Option is awarded, provided that such date shall be no later than the tenth anniversary of the Award Date of such Option. 3.4 Termination of Option An Option Holder may exercise an Option in whole or in part at any time or from time to time during the Exercise Period provided that, with respect to the exercise of part of an Option, the Board may at any time and from time to time fix a minimum number of Shares in respect of which an Option Holder may exercise part of any Option held by such Option Holder. Any Option or part thereof not exercised within the Exercise Period shall terminate and become null, void and of no effect as of 5:00 p.m. local time in Vancouver, British Columbia on the Expiry Date. The Expiry Date of an Option shall be the earlier of the date so fixed by the Board at the time the Option is awarded and the date established, if applicable, in sub-paragraphs (a) to (d) below: (a) Death If the Option Holder should die while he or she is still entitled to exercise the Option, then the Expiry Date shall be the first anniversary of the Option Holder's date of death; or (b) Ceasing to hold Office If the Option Holder holds his or her Option as Director of the Company and then ceases to be a Director of the Company other than by reason of death, the Expiry Date of the Option shall be the 30th day following the date the Option Holder ceases to be a Director of the Company unless the Option Holder ceases to be a Director of the Company as a result of: (i) ceasing to meet the qualifications set forth in section 105 of the Canada Business Corporations Act; (ii) an ordinary resolution having been passed by the shareholders of the Company pursuant to section 109 of the Canada Business Corporations Act; or (iii) an order made by any Regulatory Authority having jurisdiction to so order; in which case the Expiry Date shall be the date the Option Holder ceases to be a Director of the Company. - 5 - 9 (c) Ceasing to be Employed If the Option Holder holds his or her Option as an Employee of the Company and then ceases to be an Employee of the Company other than by reason of death, the Expiry Date of the Option shall be the 30th day following the date the Option Holder ceases to be an Employee of the issuer unless the Option Holder ceases to be an Employee of the Company as a result of: (i) termination for cause; or (ii) an order made by any Regulatory Authority having jurisdiction to so order; in which case the Expiry Date shall be the date the Option Holder ceases to be an Employee of the Company. (d) Ceasing to Provide Services If the Option Holder holds his or her Option as an Other Person of the Company and then ceases to provide services to the Company other than by reason of death, the Expiry Date of the Option shall be the 30th day following the date the Option Holder ceases to provide services to the Company as a result of: (i) termination for cause; or (ii) an order made by any Regulatory Authority having jurisdiction to so order; in which case the Expiry Date shall be the date the Option Holder ceases to provide services to the Company. (e) Holding Company Ceasing to be Wholly-Owned If the Option Holder holds his or her Option indirectly through a wholly-owned holding company, the Expiry Date shall be the date the Option Holder ceases to wholly-own such holding company. 3.5 Exercise Price The price at which an Option Holder may purchase a Share upon the exercise of an Option shall be as set forth in the Option Certificate issued in respect of such Option and in any event shall not be less than the Market Value of the Company's Shares as of the Award Date. The Market Value of the Company's Shares for a particular Award Date shall be determined as follows: (a) if the Company's Shares are listed on more than one organized trading facility, then Market Value shall be the simple average of the Market Values determined - 6 - 10 for each organized trading facility on which those Shares are listed as determined for each organized trading facility in accordance with subparagraphs (b) and (c) below, but in any event not less than the closing price of the Shares on the Toronto Stock Exchange on the business day immediately prior to the Award Date; (b) for each organized trading facility on which the Shares are listed, Market Value will be the closing price of the Shares on the business day immediately prior to the Award Date; (c) if the Company's Shares trade on an organized trading facility outside of Canada, then the Market Value determined for that organized trading facility will be converted into Canadian dollars at a conversion rate determined by the Administrator having regard for the published conversion rates as of the Award Date; (d) if the Company's Shares are listed on one or more organized trading facilities but have not traded on the Award Date, then the Market Value will be, subject to the necessary approvals of the applicable Regulatory Authorities, that value as is determined by resolution of the Board; and (e) if the Company's Shares are not listed on an organized trading facility, then the Market Value will be, subject to the necessary approvals of the applicable Regulatory Authorities, that value as is determined by resolution of the Board. 3.6 Additional Terms Subject to all applicable securities laws and regulations and the rules and policies of all applicable Regulatory Authorities, the Board may attach other terms and conditions to the grant of a particular Option, such terms and conditions to be referred to in a schedule attached to the Option Certificate. These terms and conditions may include, but are not necessarily limited to, the following: (a) providing that an Option expires on the date the Option Holder ceases to be a Director or Employee of the Company or, if an Other Person, ceases to provide services to the Company; (b) providing that a portion or portions of an Option vest after certain periods of time or expire after certain periods of time; and (c) providing that an Option be exercisable immediately, in full, notwithstanding that it has vesting provisions, upon the occurrence of certain events, such as a friendly or hostile takeover bid for the Company. - 7 - 11 3.7 Assignment of Options Options may not be assigned or transferred, provided that the Personal Representative of an Option Holder may, to the extent permitted by paragraph 4.1, exercise the Option within the Exercise Period. 3.8 Adjustments If, prior to the complete exercise of any Option, the Shares are consolidated, subdivided, converted, exchanged or reclassified or in any way substituted for (collectively the "Event"), an Option, to the extent that it has not been exercised, shall be adjusted by the Board in accordance with such Event in the manner the Board deems appropriate. No fractional shares shall be issued upon the exercise of the Options and accordingly, if as a result of the Event, an Option Holder would become entitled to a fractional share, such Option Holder shall have the right to purchase only the next lowest whole number of shares and no payment or other adjustment will be made with respect to the fractional interest so disregarded. 3.9 Approvals This Plan and any amendments hereto are subject to all necessary approvals of the applicable Regulatory Authorities. ARTICLE IV EXERCISE OF OPTION 4.1 Exercise of Option An Option may be exercised only by the Option Holder or the Personal Representative of any Option Holder. An Option Holder or the Personal Representative of any Option Holder may exercise an Option in whole or in part at any time or from time to time during the Exercise Period up to 5:00 p.m. local time in British Columbia on the Expiry Date by delivering to the Administrator an Exercise Notice, the applicable Option Certificate and a certified cheque, bank draft or cheque from a Toronto Stock Exchange member broker firm payable to "Optima Petroleum Corporation" in an amount equal to the aggregate Exercise Price of the Shares to be purchased pursuant to the exercise of the Option. Alternately, the Option Holder may arrange for a Toronto Stock Exchange member broker firm to deliver a cheque against delivery of the Shares purchased. 4.2 Issue of Share Certificates As soon as practicable following the receipt of the Exercise Notice, the Administrator shall cause to be delivered to the Option Holder a certificate for the Shares so purchased and if the Option - 8 - 12 has not been completely exercised, the Administrator shall concurrently forward a new Option Certificate to the Option Holder for the balance of Shares available under the Option. 4.3 Condition of Issue The Options and the issue of Shares by the Company pursuant to the exercise of Options are subject to the terms and conditions of this Plan and to compliance with the applicable securities laws, regulations, rules and policies of the Regulatory Authorities. The Option Holder agrees to comply with all such laws, regulations, rules and policies and agrees to furnish to the Company any information, report and/or undertakings required to comply with, and to fully cooperate with the Company in complying with, such laws, regulations, rules and policies. ARTICLE V ADMINISTRATION 5.1 Administration The Plan shall be administered by the Administrator on the instructions of the Board. The Board may make, amend and repeal at any time and from time to time such regulations not inconsistent with the Plan as it may deem necessary or advisable for the proper administration and operation of the Plan and such regulations shall form part of the Plan. The Board may delegate to the Administrator, to any Director, officer or employee of the Company or to a committee consisting of such persons such administrative duties and powers as it may see fit. 5.2 Interpretation The interpretation by the Board of any of the provisions of the Plan and any determination by it pursuant thereto shall be final and conclusive and shall not be subject to any dispute by any Option Holder. No member of the Board or any personal acting pursuant to authority delegated by it hereunder shall be liable for any action or determination in connection with the Plan made or taken in good faith and each member of the Board and each such person shall be entitled to indemnification with respect to any such action or determination in the manner provided for by the Company. 5.3 Status of Options granted under Previous Plans Any existing options granted prior to the implementation of this Plan will remain subject to the plan under which they were granted and such previous plans will remain in effect with respect to such options so long as such options remain outstanding. - 9 - 13 ARTICLE VI AMENDMENT AND TERMINATION 6.1 Prospective Amendment The Board may from time to time amend the Plan and the terms and conditions of any Option to be granted and, without limitation, may make amendments for the purpose of meeting any changes in any relevant law, rule or regulation applicable to the Plan, any Option or the Shares, or for any other purpose which may be permitted by all relevant laws, regulations, rules and policies provided that any such amendment shall not alter the terms or conditions of any Option or impair any right of any Option Holder pursuant to any Option awarded prior to such amendment. 6.2 Retrospective Amendment The Board may from time to time, subject to any necessary approvals of the Regulatory Authorities, retrospectively amend the Plan and, with the consent of the affected Option Holders, retrospectively amend the terms and conditions of any Options which have been previously granted. 6.3 Termination The Board may terminate the Plan at any time provided that any Option awarded prior to the date of such termination and the rights of the Option Holder of such Option shall continue to be governed by the provisions of the Plan. 6.4 Agreement The Company and every Option awarded hereunder shall be bound by and subject to the terms and conditions of the Plan. By accepting an Option granted hereunder, the Option Holder has expressly agreed with the Company to be bound by the terms of the Plan. - 10 - 14 SCHEDULE "A" OPTIMA STOCK OPTION PLAN OPTION CERTIFICATE This Certificate is issued pursuant to the provisions of the Optima Petroleum Corporation ("Optima") Stock Option Plan (the "Plan") and evidences that _____________________ is the holder (the "Option Holder") of an option (the "Option") to purchase up to ___________ common shares (the "Shares") in the capital stock of Optima at a purchase price of $________________ per Share. Subject to the provisions of the Plan: (a) the Award Date of this Option is _______________ 19_; and (b) the Expiry Date of this Option is ________________ 19__. This Option may be exercised at any time and from time to time from and including the Award Date through to and including up to 5:00 local time in Vancouver, British Columbia on the Expiry Date by delivery to the Administrator of the Plan an Exercise Notice, in the form provided in the Plan, together with this Certificate and a certified cheque, bank draft or cheque from a Toronto Stock Exchange member broker firm payable to "Optima Petroleum Corporation" in an amount equal to the aggregate of the Exercise Price of the Shares in respect of which this Option is being exercised. Alternately, the Option Holder may arrange for a Toronto Stock Exchange member broker firm to deliver a cheque against delivery of the Shares purchased. This Certificate and the Option evidenced hereby is not assignable, transferable or negotiable and is subject to the detailed terms and conditions contained in the Plan, the terms and conditions of which the Option Holder hereby expressly agrees with Optima to be bound by. This Certificate is issued for convenience only and in the case of any dispute with regard to any matter in respect hereof, the provisions of the Plan and the records of Optima shall prevail. This Option is also subject to the terms and conditions contained in the schedules, if any, attached hereto. The foregoing Option has been awarded this ________ day of __________, 19__. OPTIMA PETROLEUM CORPORATION Per: _____________________ - 11 - 15 SCHEDULE"B" OPTIMA STOCK OPTION PLAN NOTICE OF EXERCISE OF OPTION TO: The Administrator, Stock Option Plan Optima Petroleum Corporation Suite 600 - 595 Howe Street Vancouver, B.C. V6C 2T5 The undersigned hereby irrevocably gives notice, pursuant to the Optima Petroleum Corporation ("Optima") Stock Option Plan (the "Plan"), of the exercise of the Option to acquire and hereby subscribes for (CROSS OUT INAPPLICABLE ITEM): (a) all of the Shares; or (b) ___________________ of the Shares; which are the subject of the Option Certificate attached hereto. The undersigned tenders herewith a certified cheque, bank draft or cheque from a Toronto Stock Exchange member broker firm, or has instructed a Toronto Stock Exchange member broker firm to deliver against delivery of the aforementioned shares a cheque (CIRCLE ONE), payable to "Optima Petroleum Corporation" in an amount equal to the aggregate Exercise Price of the aforesaid shares and directs Optima to issue the certificate evidencing said shares in the name of the undersigned to be mailed to the undersigned, or delivered against payment to the following member broker firm (CIRCLE ONE), at the following address: __________________________ __________________________ __________________________ __________________________ DATED the ____ day of ________________ 19__. ________________________________ SIGNATURE OF OPTION HOLDER - 12 - EX-3.10 8 APPROVAL OF SHARE COMPENSATION 1 OPTIMA PETROLEUM CORPORATION The following resolutions were passed by the Directors of OPTIMA PETROLEUM CORPORATION (the "Company") having been consented to in writing by all the Directors of the Company as of the 22nd day of February 1996. ----------------------------------------------------------------- APPROVAL OF SHARE COMPENSATION TO OUTSIDE DIRECTORS - --------------------------------------------------- WHEREAS: (a) at a meeting of the directors held on September 13, 1994, the directors passed a resolution approving the payment to each of the Company's outside directors of $500 for each directors' meeting attended, effective as of the next directors' meeting; (b) directors' meetings were held on December 15, 1994, March 24, 1995, June 22, 1995, August 30, 1995 and December 14, 1995 but neither of the Company's outside directors (Emile Stehelin, who attended all of the meetings and Martin Abbott, who attended all but one of the meetings) has received payment for their attendance at these meetings; (c) Messrs. Stehelin and Abbott have agreed to accept 689 common shares and 551 common shares of the Company respectively in full payment of their outstanding fees; (d) in payment of the $500 fee per meeting, the Company wishes to issue 138 common shares per outside director per meeting attended for meetings during the 1996 fiscal year, up to an aggregate of 2,500 common shares; IT IS HEREBY RESOLVED THAT: 1. subject to the receipt of regulatory approval and shareholder approval, the Company be and it is hereby authorized to issue 689 common shares of the Company to Emile Stehelin and 551 common shares of the Company to Martin Abbott in consideration of past directors' meeting attended, all at a deemed price of $3.63 per share; 2. subject to the receipt of regulatory approval and shareholder approval, the Company be and it is hereby authorized to issue up to an aggregate of 2,500 common shares of the Company to its outside directors at a rate of 138 common shares per outside director per meeting attended, at a deemed price of $3.63 per share; 3. the Company make application to The Toronto Stock Exchange for approval of the foregoing share issuances; 2 4. the Company make application to The Toronto Stock Exchange to list 3,740 common shares to be issued and reserved for issuance pursuant to the foregoing share compensation arrangements; 5. any one or more of the Directors and Senior Officers of the Company be authorized and directed to perform all such acts, deeds and things and execute, under the seal of the Company or otherwise, all such documents and other writings, including treasury orders, as may be required to give effect to the true intent of this resolution. APPROVAL OF SHARE COMPENSATION TO CHIEF FINANCIAL OFFICER WHEREAS the Company has entered into a management agreement, effective January 1, 1996 for a two year period expiring December 31, 1997, with Ronald P. Bourgeois, the Company's Chief Financial Officer, providing for the payment of a monthly fee of $8,000 as well as the monthly issuance of 500 shares at a deemed issue price of $3.63 per share. IT IS HEREBY RESOLVED THAT: 1. the management agreement (the "Management Agreement") between the Company and Ronald P. Bourgeois be and it is hereby approved, ratified and confirmed; 2. the execution of the Management Agreement by any one Director of the Company, under the seal of the Company if applicable, is hereby approved, ratified and confirmed; 3. subject to the receipt of regulatory approval and shareholder approval, the Company be and it is hereby authorized to issue 500 common shares per month up to an aggregate of 12,000 common shares of the Company to Ronald P. Bourgeois, at a deemed price of $3.63 per share; 4. the Company make application to The Toronto Stock Exchange for approval of the foregoing share issuances; 5. the Company make application to The Toronto Stock Exchange to list 12,000 common shares to be issued and reserved for issuance pursuant to the foregoing share compensation arrangement; 6. any one or more of the Directors and Senior Officers of the Company be authorized and directed to perform all such acts, deeds and things and execute, under the seal of the Company or otherwise, all such documents and other writings, including treasury orders, as may be required to give effect to the true intent of this resolution. These resolutions may be signed by the Directors in as many counterparts as may be deemed necessary, each of which so signed shall be deemed to be an original, and such counterparts - 2 - 3 together shall constitute one and the same instrument notwithstanding the date of execution and shall be deemed to bear the date as set forth above. /s/ William Leuschner /s/ Robert L. Hodgkinson - ------------------------------- ----------------------------------- William Leuschner Robert L. Hodgkinson /s/ Emile Stehelin /s/ Ronald P. Bourgeois - ------------------------------- ----------------------------------- Emile Stehelin Ronald P. Bourgeois /s/ Martin G. Abbott - ------------------------------- Martin G. Abbott - 3 - EX-3.11 9 CONSENT OF AMH GROUP LTD. 1 CONSENT OF AMH GROUP LTD. PETROLEUM ENGINEERS AMH Group hereby consents to the reference to our reserve reviews dated March 20, 1997, March 7, 1996 and March 29, 1995 which were used to prepare the Evaluation of Certain Oil and Gas Properties Owned by Optima Petroleum Corporation as of December 31, 1996, December 31, 1995 and March 1, 1995, respectively, to the reference to AMH Group Ltd. as experts in the field of petroleum engineering. AMH GROUP LTD. /s/ Allan K. Ashton ----------------------------- Allan K. Ashton, P. Eng. President EX-3.12 10 CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS 1 CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS We hereby consent to the reference to our reviews dated March 13, 1997 and March 6, 1996, which were used to prepare the Estimated Future Reserves Attributable to Certain Leasehold Interests of Optima Petroleum Corporation as of December 31, 1996 and December 31, 1995, respectively, and to the reference to Ryder Scott Company Petroleum Engineers as experts in the field of petroleum engineering. RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ Kent A. Williamson, P.E. ------------------------------ Kent A. Williamson, P.E Group Vice President EX-3.13 11 CONSENT OF LAROCHE PETROLEUM CONSULTANTS, LTD. 1 CONSENT OF LAROCHE PETROLEUM CONSULTANTS, LTD. We consent to incorporation by reference in the Registration Statement of Optima Energy (U.S.) Corporation the reference to our appraisal report as of December 31, 1996, which appears in the December 31, 1996 annual report on Form 10-K of Optima Energy (U.S.) Corporation. LAROCHE PETROLEUM CONSULTANTS /s/ William M. Kazmann --------------------------- William M. Kazmann, Partner March 19, 1997 EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1 CANADIAN DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 0.7334 2,055,062 0 2,641,001 0 0 4,696,063 50,376,801 (15,612,451) 41,214,668 3,407,552 6,119,670 31,790,695 0 0 (318,267) 41,214,668 12,862,701 12,888,796 4,536,746 11,861,362 750,647 0 685,942 276,787 48,214 228,573 0 0 0 228,573 0.02 0.02
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